As the period of historically low interest rates draws to a close, a big financial dilemma is hovering over 880,000 Australian households. With their fixed-rate mortgages expiring this year, these homeowners will soon face the daunting task of finding hundreds, if not thousands, of extra dollars each month to meet their mortgage repayments. Welcome to the “mortgage cliff” — a term that has become synonymous with the impending challenge gripping the Australian property market and the wider economy.
What is a mortgage cliff, and how does a homeowner with a fixed rate home loan prepare for this? Stay with us and learn more about being financially prepared and savvy for when fixed rate mortgages end.
Is mortgage cliff a thing?
Yes, and it is a grim reality that awaits hundreds of thousands of Australian homeowners whose record-low fixed rates in and around 2020 are about to expire this year. The term “mortgage cliff” typically refers to a situation where a large number of mortgages reach the end of their fixed-rate terms and transition to a variable interest rate within a short period of time. This can result in significant changes to borrowers’ monthly mortgage payments and potentially lead to financial challenges for some homeowners.
As a matter of fact, the countdown to the mortgage cliff has already begun, with the peak resetting period commencing this July, as reported by leading banks. This cohort of borrowers will be thrust into new repayment schedules that account for a dozen interest rate rises from the Reserve Bank over just a year, culminating in the recent announcement of the official cash rate reaching its highest level in 11 years at 4.1% (as of June 2023).
In the face of this complex scenario, it becomes imperative for mortgage holders to plan, prepare, and explore viable options. By understanding the challenges ahead, seeking professional advice, and making informed decisions, homeowners can navigate the treacherous terrain of the mortgage cliff.
Here are our top 6 tips on how to brace yourselves for the impact of a mortgage cliff:
1. Evaluate your budget
Review your current budget and identify areas where you can cut expenses. Prioritise essential expenses and consider reducing discretionary spending to free up additional funds that can be allocated towards mortgage repayments.
2. Explore refinance options
Explore the possibility of refinancing your mortgage before the fixed-rate term expires. Research the market for a competitive rate on mortgage and loan terms that may help reduce your monthly payments or provide more stability.
You can communicate with your lender and discuss potential financial challenges you anticipate with the mortgage cliff. You may be able to renegotiate your home loan terms with them and get a great refinance deal so you will not have to switch lenders when your fixed rate ends.
3. Consider debt consolidation
If you have other high-interest debts, such as credit card debt or personal loans, consider consolidating them into your mortgage. This can potentially lower your overall monthly payments and simplify your debt management.
4. Ask to have your loan modified
Contact your lender to inquire about loan modification programs that can provide temporary relief or restructuring of your mortgage terms. These programs may include interest rate reductions, extended repayment periods, or temporary payment deferrals, helping to alleviate immediate financial strain.
5. Get your property revalued
A general downswing in the property market means when your fixed rate ends and you enquire about potentially refinancing, you may find your property value has decreased. This could mean less equity available to refinance. If you are facing this mortgage cliff, you can consider getting your property valued now, before your fixed rate period ends. Most lender evaluations last between 90-180 days, which means you can potentially take advantage of a higher value on your home.
6. Seek the help of a mortgage broker (that’s us!)
During the challenging period of the mortgage cliff, it can be highly beneficial to enlist the expertise of a qualified mortgage broker. A mortgage broker acts as a professional intermediary between borrowers and lenders, helping individuals find suitable home loan options based on their unique financial circumstances and goals.
At ZEP Finance, our team is dedicated to assisting Australian mortgage holders facing the challenges of the mortgage cliff. With our decades’ worth of experience, knowledge, resources, and industry connections, we can definitely help you navigate the transition from fixed-rate to variable rate mortgages with confidence.
Take the proactive step today and reach out to our team at ZEP Finance. We are here to listen, understand your situation, and guide you through this critical period. Let us help you find the right mortgage solutions that suit your needs — and we can start this journey together by clicking the button below.
After studying business and finance at university, Zain initially expected to pursue a career in finance. However, his passion for property and the experience of buying his own home led him to mortgage broking. He began his mortgage brokering career in 2009 and founded ZEP Finance in 2010.
