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How Will Fixed Rate Mortgage Cliff Impact Aussie Homeowners?

John Tran
February 24, 2023
How Will Fixed Rate Mortgage Cliff Impact Aussie Homeowners?

The Reserve Bank of Australia's (RBA) series of consecutive interest rate increases has caused many concerns for homeowners, with many worried about the possibility of a 'fixed rate cliff'. 

This so-called 'cliff' is set to affect hundreds of thousands of Aussies and could lead to significant financial losses. 

In this article, we'll look at this fixed rate cliff, how it affects homeowners, and what steps they can take to minimize its impact. With the right knowledge, you can protect yourself from the threat of a fixed-rate cliff and secure your financial future.  

What is a Fixed Rate Mortgage Cliff?

As the Australian cash rate dropped to an all-time low of 0.10 per cent in November 2020, the number of Australians taking out fixed-rate mortgages skyrocketed. But this seemingly great decision has a hidden consequence - 'the fixed rate mortgage cliff'.

This is when borrowers find themselves at the end of their predetermined loan period, facing a sudden and uncharacteristically large increase in repayments. With the cash rate back up to 3.35 per cent, many Australians need help paying these higher costs and finding themselves deep in debt.

How Many Homeowners Will be Affected?

The Reserve Bank of Australia (RBA) estimates that this year will see many Australians heading towards the cliff as $350 billion in credit rolls off from fixed to variable interest rates by 2023. According to Marion Kohler, head of the RBA's economic analysis department, the number is estimated to be somewhere in the high 800,000s. This does not necessarily mean that all these are households, as individuals have multiple loan facilities. This significant shift in interest rates is likely to impact lending and the housing market. 

The RBA stresses the importance of knowing current variable rate changes and potential consequences when entering new fixed-term contracts. Australians must stay informed and seek independent advice to ensure they are making the right decision when choosing a loan facility.

Financial institutions across Australia will be closely monitoring the impact of this movement and governmental responses to navigate the best path forward for their customers in these uncertain times.  

Steps to take to get ready for the Fixed Rate Mortgage Cliff

These are some tips on preparing for the fixed-rate mortgage cliff and protecting yourself and your family.

  1. Analyze how your finances are doing right now. Examine your budget carefully to see where you stand financially since this will make it easier for you to calculate how much cash you have available to pay off or restructure any fixed-rate mortgages that may be impacted by the cliff.
  2. Think about refinancing. Refinancing is a great strategy to reduce debt and save money on mortgage payments, so do your homework to learn about the rates that are available in your area as well as any additional refinancing costs.
  3. Create a plan for paying off or restructuring any fixed-rate mortgages that may be affected. Make sure to devise a timeline that works for you and your budget and stick to it. You should also consider incorporating additional payments if possible since this will help reduce your overall debt in the long run.

Get In Touch With Us

An urgent solution is needed for the fixed-rate mortgage cliff. Nevertheless, folks who are in this predicament have a range of options, including refinancing and seeking professional financial advice. Any time one decides to take on debt of any sort, it is essential to do so with knowledge of the possible dangers involved, including those that may be related to fixed-rate mortgages.

Schedule a call with us today if you're ready to explore your options and we'll be happy to answer any questions you have and get you started on the path to a new loan.

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