As around 800,000 fixed interest mortgages are set to convert to variable rates in 2023 – in what is termed the mortgage cliff – the Finance Brokers Association of Australia (FBAA) has urged borrowers to consider their options well before the end of their fixed rate term.

FBAA managing director Peter White AM said that some borrowers converting to variable rates will have a significant and sudden increase in their monthly payment. 

“If you leave it to the last minute to consider what to do, your choices will be more limited, so do your research now,” he advised.

He also warned against focusing only on rates. “You must choose the option that is best for your individual needs.”

Mr White said anyone coming off a fixed rate or thinking of refinancing should ask themselves these four questions:  

1. Lifestyle – What do I want to do over the next one to two years? 

“Fixed rate loans are less flexible and often come with high early-exit fees, so if you want to renovate, install a pool, take money from the mortgage for a holiday, or refinance in the near future, a variable rate may be the best option.”

2. Affordability – Do I prefer to play the market or would I prefer the stability of a fixed rate?

“This is a personal choice based on what best suits the borrower. They should consider their personal borrowing needs in the coming year or two.”

3. Financial – Is it financially beneficial for me to refinance?

“While refinancing can mean a lower interest rate and even a cash incentive, these may be offset by fees and exit costs. Nothing is free and there are times when it is more expensive to refinance. In these cases, it may be best to stick with your current lender and try and renegotiate.” 

4. Lender – What lenders do I approach?

“Most borrowers don’t know the range of lenders available to them. While everyone knows the major banks, a significant percentage of mortgages are now being written by second tier and non-bank lenders which are less known. In fact, non-bank lenders are only accessible through finance and mortgage brokers. These lenders can be very competitive, and can also be more flexible which often suits for example small business owners with varying incomes, or those with past credit issues.”

Mr White said there are many more options available through mortgage brokers, and that brokers are bound by law to act in the borrower’s best interests.

“But it still comes down to the fact that the best option for each person is their individual circumstances.”