Home loan and mortgage interest rates are always a hot topic and often a source of anxiety for home buyers. This is why so many buyers choose to lock in interest rates when they select a loan — choosing a fixed rate mortgage that offers ongoing consistency and reliability in terms of interest payments.

But this fixed rate is unlikely to last for the duration of your loan. Instead, your mortgage provider will set an expiration date, at which point the fixed rate period will end. So what happens next?

What happens after your fixed loan expires

After your fixed loan period expires, your loan will not be fixed anymore, and the terms and conditions will need to change. The loan will either be fixed again — locked in at a new rate — or it may switch to a variable interest rate loan.

You will have some control over what happens to your loan, and your mortgage lender may give you the choice of which option to take. If you agree that the new fixed rate offered by the lender is acceptable, you may want to continue with this route. Alternatively, you may believe that a variable interest loan is a better option for the future and select this product instead.

The difference between fixed loan and variable loans

Why is it so important whether you are on a fixed rate home loan or a variable rate product? Simply because of the huge potential variation in the price you pay over the full duration of your loan.

If you take out a loan in a period of low interest, you may want to fix this low interest rate for the long term. The mortgage provider may give you the option to lock in your interest at a low rate with a fixed interest loan. When mortgage interest rates rise and exceed your loan’s fixed rate, you are saving money.

However, you may believe interest rates will fall in the future. A variable rate loan may be the better option in this instance, because the interest will track against the currently available rates in the market. So if the rates do fall, a variable option will provide savings over the course of the loan.

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The importance of reviewing your home loan and circumstances

It seems like the expiration of the fixed rate is an inevitability, and there’s nothing you can do about this. While this is true to an extent, it’s still important to stay on top of the terms and conditions of your home loan, as well as your own circumstances and those of the market. Here’s why:

  • Your mortgage provider may not tell you what is best for you. The lender is under no obligation to tell you what you should do impartially. Instead, they may just give you the option to refix or to switch to the variable rate. It’s up to you to know which choice to make, and this will require research into the market.
  • You may be able to choose the duration of your new fixed term. Mortgage providers may offer products that are fixed for between one and five years, and you may be able to select this yourself. This adds further choice but also further complexity, as you may need to decide on the best term for your situation.
  • You may not receive any communication from your mortgage provider. Your mortgage provider may not contact you until the end of your fixed rate period, which means you will have very little time to prepare. This can make it difficult to make the right decision for your future. In some cases, the mortgage provider will simply switch you automatically to a variable rate product; this is why you need to stay on top of your personal circumstances, so you know how long you have got left to make the change.

Find the right home loan for you

Here at Sydney Brokers, we can help you find the right home loan or mortgage product for your needs. Reach out to our team to find out more and connect with loans that suit your personal circumstances and future plans.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.