Don’t fall off the mortgage cliff: 4 questions to ask before switching to variable rates in 2023

With around 800,000 fixed-rate loan contracts expected to switch to variable rates in 2023, an expert is advising borrowers to carefully evaluate their options as they face the “mortgage cliff.”

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Peter White AM, the managing director of the Finance Brokers Association of Australia (FBAA), said some borrowers converting to variable rates will observe a significant and sudden increase in their monthly payments. 

To help mortgage holders cope with the change in their monthly repayments, he advised borrowers to be proactive in the lead-up to the end of their fixed rate deal. “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 warned against focusing only on interest rates. “You must choose the option that is best for your individual needs.”

To bring surging inflation under control, the Reserve Bank of Australia (RBA) began its fiscal policy tightening last May. Following its first policy meeting for 2023, the country’s cash rate currently stands at 3.35 per cent, its highest level in just over a decade. 


The latest 25-basis-point increase is another slug at Aussies’ borrowing capacity, which has significantly fallen since the central bank began its rate rise cycle. 

Mr White advised that 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? 

When considering your mortgage option, Mr White recommended taking into account the type of lifestyle you want to lead in the coming 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,” he explained. 

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

He reminded borrowers to factor in what option will be best for their financial needs when mulling over their next mortgage product. “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, Mr White reminded that in some cases, these cost efficiencies 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,” he stated.  

 4. Lender – Which lenders do I approach?

He stated most borrowers are aware of the range of lenders that are available to them. While most people are familiar with the major banks, he explained that there is a significant percentage of mortgages 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,” he said. 

Mr White highlighted that 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,” he concluded.

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