If you’ve been on a fixed rate loan, you probably haven’t worried too much about these announcements. But as your fixed rate period draws to a close, you might be wondering what this could mean for your budget.

The RBA reports that 40 percent of fixed-rate loans outstanding in early 2022 will expire by the end of 2023, which equates to over 800,000 loan facilities in 2023. A further 450,000 are due to expire in 2024. ⁽¹⁾

Current variable loan rates may be significantly higher than the fixed rate you’ve grown accustomed to, but there are ways you can prepare for coming off the fixed rate period of your loan. Here are five tips to help you prepare to pay more for your home loan:

1. Make debts easier to manage

If you have extra debts like a credit card that you don’t pay off each month, consider consolidating it into your home loan. By switching from multiple repayments to one simple one over the term of your home loan, it could help make managing your commitments a little easier. You could also look to switch it out into a personal loan with terms that might suit you better.

2. Avoid touching your redraw

If you’ve made progress on paying extra off your home loan, then that’s great news. Now’s the time when you’ll really benefit, as you’ll pay interest on a smaller balance which can help you pay it down sooner. Try and enjoy the benefits of your hard work for as long as possible by avoiding touching the money in your redraw account.

3. Stash your cash

If you’ve got some spare cash, don’t spend it now. Consider putting it aside to save for the proverbial rainy day. Hold off on making bigger purchases, such as upgrading your car or booking a holiday to help you put away some savings.

Another tip is to try and understand what your new mortgage repayments could look like and start adjusting now, by adding the difference to your home loan. This will give you time to adjust to your new expenses so it won’t come as a shock later.

You could also try to make some extra repayments on your mortgage to reduce your balance before you come off your fixed rate period.

4. Review your budget

Get ready to adapt to potential changes in your loan repayment amounts by taking a close look at your budget. By doing so, you'll gain valuable insights into where you may need to make adjustments in your lifestyle to accommodate the changes. It may require accepting the fact that your lifestyle needs may have to shift, but by being proactive, you can better prepare yourself for any upcoming financial challenges.

Regular budget reviews make for good financial housekeeping, and there might be some expenses you can cut back, or make some other sacrifices for the time being if things get a tad tight. Review items such as subscriptions or memberships to see where you can cut back. You can reconsider takeaway food, going out expenses and other shopping habits if your lifestyle needs to change.

If your finances are stretched to the limit, it may be time to consider more significant changes. For example, downgrading your vehicle, taking on extra paid work if it's feasible, or selling off an investment property or other asset. Remember, sometimes making tough choices is necessary to ensure your long-term financial well-being. Remember, every little bit helps.

5. Don’t bury your head in the sand

We’re here to support our members during uncertain times. At times things can get tricky, and we understand this. So, if finances are tight, contact us early to have an open discussion with us, and we can work through your options together.

If you’ve got questions, you can reach out to us by getting in touch via our website or giving us a call on 1300 13 14 65.



^Source:

^{1 Lovicu G, Lim J, Faferko A, Gao A, Suthakar A and Twohig D (2023), ‘Fixed-rate Housing Loans: Monetary Policy Transmission and Financial Stability Risks’, RBA Bulletin, March}

^{https://www.rba.gov.au/publications/bulletin/2023/mar/fixed-rate-housing-loans-monetary-policy-transmission-and-financial-stability-risks.html}