Mortgage cliff approaches fast

Fixed-rate term ending for many borrowers

Mortgage cliff approaches fast


By Mina Martin

A significant mortgage transition looms as 27% of borrowers are set to shift from fixed-rate mortgages to potentially higher variable rates within the next year, according to recent research conducted by comparison website Finder.

This change involves approximately 891,000 mortgage holders who secured low fixed-rate loans during the pandemic and have not yet transitioned to variable rates, which are currently nearly three times higher.

Past and future challenges

The Finder survey, which included 1,012 participants with 292 being mortgage holders, also highlighted that 21% (about 693,000 households) have already transitioned from low fixed rates in the past five years, with many now struggling with considerably higher repayments.

“A massive change is coming for those borrowers who were very fortunate to put their rate on ice when they did,” said Sarah Megginson (pictured above), a personal finance expert at Finder.

Rate hikes and financial strain

With the Reserve Bank’s next interest rate decision scheduled for June 18, and following 13 rate increases since April 2022, the average homeowner now faces almost $1,400 in additional monthly repayments.

The continuous rise in rates over the past two years has shielded some, but as fixed terms end, a new reality sets in.

“Rates have been rising persistently over the past two years and are 4.25% higher than they were – but this group has been insulated from the sting, as they locked in their loan just before rates started to climb,” Megginson said.

Looking ahead and coping strategies

While experts remain divided on whether the cycle of rate increases will continue, inflation trends suggest potential declines in the RBA cash rate. However, Megginson warned of the severe impact of further increases.

“We expect that many mortgage holders will be unable to meet their monthly obligations if rates do increase, as it would be a huge financial shock,” she said.

Megginson also advised those facing mortgage stress to explore hardship arrangements with lenders, such as interest-only loans or mortgage holidays, and for those overcommitted, to consider renting out spare rooms or downsizing.

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