If you took out a fixed rate 2 or 3 years ago in the low 2% or high 1%, those fixed rates are ending in the next 3 to 12 months. You will soon be facing a rise in your mortgage repayments as those fixed rates revert to the current variable rates, which are currently sitting at between 6% to 7% (this article was written on the 18th of July 2023).
What are the possible effects of the Fixed-Rate Mortgage Cliff?
With $350 billion worth of fixed-rate mortgages expiring in 2023, here are the possible effects on households and the Australian economy.
- Increased Mortgage Defaults: For some borrowers, the sudden rise in repayments can lead to an increase in mortgage defaults. A mortgage default is when a borrower is unable to make the repayments on time or does not make the repayment at all.
- Reduced Household Spending: Higher mortgage repayments affect household budgets leaving borrowers with less disposable income for other essential expenses. This leads to a decline in consumer spending.
- Slowed Economic Growth: A decline in consumer spending coupled with a rise in mortgage defaults can lead to an overall slowdown in the economy. Reduced economic growth, in turn, can have repercussions on employment rates, inflation, and business activities, creating a ripple effect across industries.
What should you be doing to prepare for the Fixed-Rate Cliff
First and foremost, you should be reviewing your budget. Try to build up savings while you’re still on the low fixed rate. Focus on paying down those high interest debts such as your credit cards and personal loans. Try to live as if the mortgage repayments were a thousand dollars more by cutting down on your spending. Review your spending and find out where you can spend less i.e. less take-out and cook more at home or cancel some of your subscriptions.
Seek professional advice. Consult with your mortgage broker. Brokers have access to a number of lenders and the rates the banks offer. They can do pricing with your existing bank and compare it with what other banks are offering. Brokers can advise you whether to stay with your current bank or to switch to another bank offering a more favorable interest rate.
Bank economists are predicting one or two more rises in the cash rate this year.
At Maverick Finance, we understand the concerns and uncertainties that borrowers may experience during this period. Our team of experienced mortgage professionals is here to help you make informed decisions and find solutions that suit your individual needs.
Whether you’re looking for guidance on budgeting, exploring refinancing options, or seeking expert advice on managing the potential impacts of the fixed-rate cliff, our dedicated team is ready to assist you every step of the way. We have the knowledge and expertise to provide personalized strategies that align with your financial goals.
Maria Papa is a senior property and finance expert specialising in home loans, investment loans, self-employed loans, alt doc loans, car loans, personal loans, and loan protection. She has offices in Sydney, Melbourne, and Manila. If you have questions, you can call Maria at 0430 144 008 or email her at mpapa@maverickfinance.com.au.