How to cope when your fixed-rate term ends

If you took out a fixed-rate mortgage in 2020, 2021 or early 2022, you would have locked in historically low interest rates. Unfortunately, as those fixed rates roll off, you’ll probably have to move to a higher-rate loan.

The sooner you start planning for your new scenario, the better. You can do that by calculating what your new monthly repayment will be and identifying where you will find the extra money from. Potentially, you might have to cut back on some discretionary spending.

It can also be a good idea to start making the higher payment ahead of schedule. This can be done by paying the extra amount into an offset account or redraw facility (if your loan has one) or paying it into a special savings account. That way, when your higher monthly repayment kicks in, it won't come as a shock.

At the same time, you might need to beef up your emergency savings buffer. Many experts recommend setting aside enough money to fund three to six months of expenses, so you're covered if you suddenly lose your job. Once your mortgage repayments increase, so will the amount of money you need in your emergency fund.

Why you should consult a mortgage adviser

You should also speak to a mortgage adviser about potentially restructuring or refinancing your loan.

Some economists believe interest rates are likely to trend down, which means that when your fixed-rate term ends, you might want to revert to a floating interest rate: that way, you'll benefit from any rate cuts that might occur.

Alternatively, you might feel more comfortable re-fixing. True, you'd be locking in a significantly higher interest rate than you’re currently paying, but you'd also have budgetary certainty.

Another option might be to change the structure of your loan. For example, you could make it part floating and part fixed, to potentially get the best of both worlds; or you could extend your loan term or switch to interest-only, to reduce your monthly repayments. (Please seek professional advice before proceeding with either of those last two options, as they’ll force you to pay more over the life of your loan.)

You could also switch to a different lender. The mortgage market has moved a lot in the past few years, so even though your current lender may have been the best option when you took out your home loan, there might now be other lenders offering better deals.

As your mortgage adviser, I’ll be very happy to explain your options, discuss their pros and cons, and recommend how to move forward.