What to do when your home loan fixed rate ends

When a home loan’s fixed rate term comes to an end, you generally have two options. You can either ask your lender to refix or, if you do nothing, your loan will automatically revert to the variable rate product outlined in your loan contract.

Although there’s nothing new about this, fixed-term mortgage-holders reverting to variable rates is set to be an unusually pressing issue this year. Why? Well, as detailed in our review of the Australian economy in 2022, soaring inflation led to the RBA making eight successive raises to the cash rate last year.

To give you an idea of what this means at the individual level, someone with a $750,000 variable home loan is now paying $1251 per month more than they were at the start of 2022.

While this obviously won’t have been a welcome development for those with variable rate mortgages, they will at least have experienced the increases incrementally. The concern for this year is that people who fixed at the record low rates being offered in 2021 (typically less than 2%) will suddenly revert to much higher variable rates from April onwards, with the trend continuing well into 2024.

We understand that this is a difficult time for many of our customers and would like to make you aware, if you’re not already, of our FAQs page where you can find more information about why rates are going up and tips to help you get ahead.

In order to further assist, this article explains the pros and cons of refixing compared to a variable loan, the benefits of a split loan, how an offset account can help, and how best to handle the sudden increase to your outgoings.

• Discover your new home loan repayments with our online calculator

Can I extend my fixed rate mortgage?

The first thing to understand about refixing is that it doesn’t mean you can simply extend the term of the fixed rate you had before. That would be too good to be true! If you choose to refix, it must be at your lender’s current fixed rate is. While this will inevitably be higher than the corresponding variable rate product, the rate itself shouldn’t be the only consideration when deciding which way to go.

Fixed vs variable = certainty vs flexibility

The choice between fixed and variable rate loans is essentially one between certainty and flexibility. As the name suggests, a fixed rate loan means that your minimum repayment is locked in. This offers peace of mind, particularly given that further rate rises are expected this year. The potential downside, of course, is that you wouldn’t benefit from any rate decreases that might occur during your fixed rate term.

On the other hand, variable rate loans tend to come with more features such as unlimited extra repayments and the ability to link multiple offset accounts.

Let’s take a closer look at what this means with specific reference to Great Southern Bank Home Loans.

Great Southern Bank Fixed Rate Home Loan

Pros:

• $0 monthly account and annual fees
• Locked-in interest rate for one, two, three, or five years
• Up to $30,000 fee-free extra repayments over the duration of the fixed-rate term
• Free redraw of your extra repayments*

Cons:

• No benefit if interest rates go down
• Fee-free extra repayments capped at $30,000**
• Early Payout Cost may apply if the fixed rate term is broken***

Great Southern Bank Variable Rate Home Loan

Pros:

• $0 monthly account and annual fees
• Unlimited fee-free extra repayments
• Free redraw of your extra repayments*
• Save on interest with multiple offset accounts (Offset Variable product only^)

Cons:

• The Interest rate is subject to change

How do offset accounts work?

At this point, you might be wondering what an offset account is and how it can help you save on interest. In simple terms, an offset account allows you to use the balance of a linked transaction account to “offset” (or reduce) the balance of your home loan that interest is charged on.

So, for example, if you have a home loan balance of $300,000 and have $30,000 in your offset account, you'll only pay interest on a home loan balance of $270,000.

For more information about this strategy, click here.

What is a split loan?

It’s worth remembering that you’re not restricted to choosing between a fixed rate and a variable home loan. You can have the best of both worlds with a split loan.

How does it work? Well, a split home loan is a combination of both fixed and variable home loan products ‘split’ across the one home loan. When you split your home loan, you have a fixed portion and a variable portion.

For example, a $500,000 home loan could be split like this:

• a $200,000 variable principal and interest home loan
• a $300,000 three-year fixed principal and interest home loan

With a split home loan, you can manage the risk of an interest rate rise with a fixed portion, while also enjoying the extra features of a variable rate home loan such as an offset facility, redrawing payments if you need to, or making extra repayments to pay your loan off early.

For more information about split loans, click here.

How can I minimise the impact of my increased home loan repayments?

There are a number of things you can do to minimise the impact of the forthcoming change to your home loan repayments. These include:

Changing your repayment frequency to weekly or fortnightly

There are 12 months in a year but 26 fortnights. This being the case, changing your repayment frequency to fortnightly means you’re effectively making an additional repayment per year. This can reduce the amount of interest you need to pay over the life of your loan and may help with budgeting, particularly if you are paid by your employer weekly or fortnightly.

Utilising your offset accounts (if available on your loan)

Eligible customers can link up to six offset accounts to reduce the amount of interest due each month, meaning they are paying down the loan balance (the principal) faster.

Making fee-free extra repayments with free redraw

If you’re not already, and you’re in a position to, it’s worth utilising this feature before your fixed rate ends. Not only will your balance be reduced further, but it’ll also give you a buffer prior to rolling on to a higher rate.

Using a high-interest savings account or term deposit

If you have reached the $30,000 cap for extra repayments, directing any spare funds to a high-interest savings account or term deposit is a wise move.

Reviewing your household budget

Reviewing your everyday spending now can help you cut costs before your home loan repayments go up. Our online budget calculator is a great way to do this.

Find out more

For all the information you need to navigate these uncertain times, check out our guide to getting rate rise ready.

If your fixed rate home loan is due to end soon, we have a dedicated fixed rate expiry page to help you know what to expect, understand your options, and make the right decision.

We’re here to help

As mentioned earlier, we fully appreciate that this might be a concerning time for many of our customers. If you are worried about your ability to make your new repayments, or you would simply like to discuss your options, feel free to give one of our Home Loan Specialists a call on 133 282.

*A $200 minimum withdrawal amount applies for redraws conducted in-branch.

**A daily transfer will refund any amounts paid in advance in excess of the total advance repayments allowed during the fixed rate period ($30,000) unless sufficient to pay out the loan in full (in which case an Early Payout Cost may apply). Excess funds will be transferred to the nominated deposit account, which must remain open for the fixed rate period.

***An Early Payout Cost may apply if the loan is terminated during the fixed rate period. A partial Early Payout Cost may apply if a reduction to the principal is requested during the fixed rate period. Click here to view the Early Payout Cost Factsheet.

^You must maintain a minimum balance of $500 in each offset account to obtain an offset benefit. You will also not receive any interest on the funds in your offset accounts.