Australian Home Loan Customers Should Get Ready for Imminent Fixed Rate Cliff

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Millions of Australian home loan borrowers are currently on fixed-rate loans. Many are worried that they will be too financially stretched as they approach the fixed rate cliff.

According to many experts in the industry, a fixed rate cliff is the “expiration of fixed-rate terms on mortgages and their subsequent repricing at much higher rates.” Many homeowners signed a 2-year contract with fixed rates at the start of the pandemic, and these contracts are set to expire this year.

Eliza Owen, head of research at CoreLogic, mentioned, “With the fixed rate period coming to an end this year, around 23% of all outstanding fixed mortgage debt will be repriced at a much higher rate, posing a risk to many borrowers. Factoring in another 50 basis points of rate hikes over March and April, average variable rates could be around 5.7% for owner occupiers and over 6.0% for investors.

Owen added that the impact might be felt by April due to the prediction that the rate change and the sizes of loans taken out will be significant

Anthony Waldron, CEO of Mortgage Choice, added, “We’re concerned about how many older Australians, who may be on a pension or budgeting for retirement, are approaching the so-called ‘fixed-rate cliff.’ If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock.”

The Reserve Bank of Australia (RBA) predicts that when fixed-rate loans expire, borrowers expect three to four percentage point increases in their home loan interest rate, becoming variable.

The CEO added that home loan repayments take up the most significant chunk of the budget in every household, causing financial stress. He, however, advised that home borrowers should reach out to their brokers so that they can work out a plan to lessen the burden of the fixed rate cliff.

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