One of the most important things to consider when buying a home is your mortgage. More often than not, many homeowners choose a fixed-rate loan since it can provide clients with more predictability and protect them from a sudden increase in mortgage payments due to fluctuating interest rates.
With every homeowner's eye on the prize and wanting to pay off their mortgage, what happens when your loan's fixed interest terms will end? Do you switch to a variable rate, or do you get another fixed-rate loan? Should you explore other options and look for alternative mortgage funding?
Fixed-Rate Mortgage: What is It?
A fixed-rate mortgage lets you fix the interest of your loan for some time. This means you'll know exactly how much you'll be paying every month, protecting you from sudden interest rate rises during the fixed-rate term.
As previously mentioned, fixed-rate interest terms aren't set for the long haul and would only last between one to five and even ten years, depending on the lender you're working with.
What to Do When Your Mortgage Rate Expires?
When your term period ends, you'll need to decide on your next step and what you should do. Here are some things you can consider doing:
- You can refix your mortgage with your lender to set a new interest rate;
- You can select an alternative mortgage funding option or loan type, such as floating, standard, split loan, or a variable-rate home loan;
- You can refinance your loan with a different lender who is offering a better deal;
Typically, if you don't decide or choose to refix your mortgage, your interest rate will automatically switch to your lender's variable interest rate until you decide to change it. Today, these rates are often higher than fixed rates, which could cost you more in loyalty tax in the succeeding years.
What's the Best Option After a Fixed-Rate Term?
- Refixing with a New Rate: Most clients who like the predictability of a fixed-rate loan will refix their mortgage with an updated interest rate. This is perfect if you think interest rates will rise in the future, making payments much harder to manage. However, depending on your lender, you may end up paying a bit higher, so it's best to speak to your lender regarding this.
- Choosing a Floating Home Loan Rate: Floating home loans come with a variable interest rate, which often changes depending on your lender's RBA cash rate. If you notice a sudden interest drop in the future, it's best to take advantage of this, but note that your lender can increase their interest rate in the future.
- Opting for a Split Loan: If you're unsure what to choose, you can select a split loan and have part of your loan as a fixed rate and the other as a variable rate. Some have a 70% fixed-rate loan, and the other 30% with a variable rate.
The Bottom Line: Refinancing Your Loan at the End of the Term
Whatever alternative mortgage funding option you choose, the end of your term is the perfect time to consider refinancing your loan with a different lender. Doing so comes with a plethora of benefits, such as gaining access to loans with ideal rates, lower fees, and other financial features.
Besides that, you get access to additional home equity, which allows you to fund renovations, pay your debts, purchase investment properties, and more!
How Can We Help You?
Wealthy You is one of the leading mortgage companies in Sydney, offering a variety of mortgage solutions that meet every clients' needs. Since we're alternative lending specialists, we provide alternative mortgage funding options that make refinancing your home simple.
Learn more about our services today!