When the fixed term on your home loan ends - what do you do ?
When you lock in or 'fix' the interest rate on your loan (whether that be for six months or generally up to five years) there will always be a “review date”. This review date comes naturally at the end of your 'fixed term' mortgage period. The interest rate is only locked in for the period you've selected, so when that time ends your lender will need to review your new interest rate.
In the vast majority of cases, the bank will be in touch with you either via phone or letter to arrange a review of your mortgage rate. For savvy home owners this actually represents a great time to review your options.
At Stephanie Murray Mortgages we can review your home loan once your fixed term period is coming to an end and see what is going to be best for you going forward. There are a number of factors to consider when this time is looming and all are important in understanding whether your circumstances have changed enough for you to look for a more suitable deal.
After all, you will have your mortgage for quite some time and even a single percent difference in interest rate can result in hundreds of thousands of dollars paid over the full term of a loan.
These factors include:
- Whether you have any savings that you wish to use for a “lump sum” reduction on to your current borrowings. This is often one of the few times you can make a lump sum reduction on your borrowing without paying a penalty or an admin fee. In this case, you would look to pay this amount from the amount currently outstanding before proceeding.
- How much your income will be going forward. Whether your income is going to go up or down or remain constant in the future can influence the amount you could be paying. Your income may have increased since you took out your mortgage so you may wish to increase the repayments now to pay off the debt quicker. You may know that your income may decrease in the future, due to events such as having a family ,so you may want to decrease repayments accordingly.
- Your financial goals. You may want to pay your home loan off within fifteen years, or by the time you are 50; you may want more funds available to travel or pay for a child’s education. Or you may want to build up maximum equity in your home so you can have several investment properties by the time you are 50. Whatever these goals are this could affect what you do with your current mortgage.
- Current market conditions. There is no crystal ball to help predict the future unfortunately, but interest rates may be looking like they are going to go up, down, or stay around the same in the coming years. This impacts how long you might want to 're-fix' your interest rate for and can be influenced by elections, market conditions, the economy or unforeseen circumstances.
- Are you getting the best interest rate possible ? Could you get a discount from your current bank if you renegotiated the agreement, or can you get a cash incentive to go to another bank along with a better interest rate or package for your needs ? Gone are the days where you're locked into one bank for life and savvy home owners can (and should) shop around regularly for the best deal for them.
What happens if you don't review before the end of your fixed term contract?
If your bank or mortgage broker doesn’t hear from you before your fixed rate term ends, you’ll automatically switch across to a floating rate home loan.
A floating rate home loan follows the market interest rate so can fluctuate (increase or decrease) over time. This may mean a change in your mortgage repayments so it would be worth keeping an eye on. Remember, with a floating rate home loan you can change your loan structure at any time in the future, as you're basically on a standard agreement. In the case of a homeowner on a floating rate you can just contact us and we’ll help you structure your loan to fit your needs.
At Stephanie Murray Mortgages we can look at your overall situation and find solutions for you. Even if that does mean staying with your existing bank we may be able to help negotiate a better deal with them. Ultimately we work for YOU and want to get you the best deal available. We are available at a time and place that suits you for a free no obligation chat. Contact Us Today
Reviewing the mortgage
When it comes time to review your mortgage repayments, it's a good idea to check things like your level of repayments and interest rate from time to time. We recommend you do this every year or two, or when:
- A fixed rate loan is about to expire
- The interest rate on a floating rate mortgage changes
- There’s a big life change on the horizon, such as starting a new job
- You get a big lump sum such as lotto or an inheritance
It helps to take a moment and ask – are these mortgage payments still as big as I can comfortably afford ? Check your budget to see if there is spare money to put toward extra repayments, or to handle changes in interest rates.
Even a small change, like boosting your mortgage repayments by the equivalent of $25 per week may save thousands of dollars in interest, which means you could be mortgage-free months or even years earlier !
Increasing your mortgage
The end of your fixed term is also a good time to look into consolidating other debts or other loans with higher interest rates that you have been struggling to pay off, e.g. a car loan at 15% or credit card debt at 19%, could be paid off by increasing the amount of your mortgage.
This can reduce your monthly outgoings considerably. However, the thing to watch out for is whether you end up paying more because the debt drags on for longer. It's important to seek professional financial advice to see which option can be the best for reducing your monthly outgoings.
You may also like to increase your loan so you can undergo renovation plans that you have been working on over the course of your fixed term loan. This may enable you to sell your house for more, which could then be used to pay off the extension on your mortgage. Again, it's worth carefully considering all options available before committing.
Another bank may have a good offer that can benefit your situation better. You may also find that your situation has changed over the years and that going to a different lender could be a better option for you.
This is when talking to a mortgage broker can help find the best solution for you. The very best news ? It's free to talk to us!
This information is general information only and must not be relied upon as legal advice. A disclosure statement is available here.