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Australian borrowers with fixed rate home loans may face a significant increase in their mortgage repayments when their loan term comes to an end, according to a recent study from Mortgage Choice.
In a survey of more than 1,000 Australian home loan customers in late November and early December, which was commissioned by Mortgage Choice and conducted by Honeycomb Strategy, 71% of respondents were concerned about coming off their fixed term rate, while 55% were already feeling financially stretched.
Nearly half of the survey respondents said they currently have a fixed rate or a split loan where a portion of the loan is on a fixed rate and the rest on a variable rate.
Broker customers were also found to be more likely to have a fixed rate or split loan, with these customers making up 48% of respondents versus 40% for non-broker customers.
Additionally, 61% said they chose a fixed rate loan as a measure against interest rate hikes. This figure jumped to 81% for customers aged 55 and over.
Mortgage Choice CEO Anthony Waldron (pictured above) expressed concern for older Australians on a pension or budgeting for retirement and approaching the “fixed rate cliff,” especially as data from the Australian Bureau of Statistics has shown that 43% of people aged 55 to 64 and 13.4% of people aged 65 to 74 are currently paying off a mortgage.
“If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock,” Waldron said.
The Reserve Bank of Australia has said that around two-thirds of the 35% outstanding housing credit on fixed rate terms is set to expire by the end of 2023, with borrowers predicted to see their home loan interest rate increase by three to four percentage points when their fixed term closes, and they transfer to a variable rate.
According to the Mortgage Choice survey, one-third or 33% of fixed rate customers said they would ask for help from a broker at the end of their term to secure a better deal, while 21% said they would look to a different lender to find a better rate. Furthermore, 16% said they didn’t know what they would do when their fixed rate period comes to an end.
“The research showed us that home loan repayments are already the biggest monthly expense for 80% of people,” Waldron said. “Financial stress is already an issue, and each interest rate rise exacerbates the problem further.”
After the RBA delivered its ninth consecutive rate hike this month, Waldron advised borrowers to have a sound plan in place for when their fixed rate term ends.
“Refinancing may be a good option for you, or your broker can try to negotiate a better rate with your current lender,” Waldron said. “Regardless of what you decide to do, having a broker in your corner and a sound plan in place will provide you with better options.”
A previous Mortgage Choice survey found that 31% of over 1,000 home loan customers are considering refinancing within the next 12 months, and 41% of borrowers have refinanced their loan within the last two years.
