How to tackle the fixed rate cliff?

After a period where interest rates hit the lowest level on record, the RBA has quickly changed things up in their battle against inflation and has been hiking rates consistently since May.


We’ve already seen the official cash rate rise from a low of 0.1% to 3.1% which has meant mortgage repayments have already increased by 60%. It’s currently expected that the RBA will once again increase the cash rate at the February meeting before we they will potentially look at a pause.


While variable-rate borrowers are already experiencing higher interest costs, over the past few years many homebuyers chose to take out fixed-rate loans. During the pandemic, fixed-rate loans were as low as 2% and now those low-interest rates are about to roll off onto much higher standard variable rates.


According to the RBA, there are roughly 800,000 households that will be facing a sharp increase in their repayments, when forced to move from an interest rate in the low 2s to something more like 5%.


For the borrowers who are expecting to see an increase in their repayments this year, it’s important that you get proactive and seek out the best loan product and interest rate you can. There are three things you can do to help lower your overall level of repayments.


Talk to your bank

One of the most obvious solutions to finding a better rate is to simply talk to your lender. It’s widely understood that banks tend to punish borrowers who have been with them the longest. They normally offer lower “incentive” type rates to new customers to win their business, but when you’re already a customer they will quickly forget about you.


The easiest thing to do is to simply approach your lender and ask about improving on their variable interest rate. Many lenders will be keen to help as it’s worth more to them for you to stay on than it is to lose your business.



If your lender won’t play ball, then it’s time to start comparing your options. A mortgage broker is a great resource here as they’ll be able to assess your personal situation and find the best options out there for you.


When you refinance you are effectively paying out your current loan and taking on a new loan with another lender. It’s sometimes possible to find some of those lower incentive rates and this could be something that might help in the short term.


In the event that you do find a superior loan product, it’s important to keep on putting money into your loan where you can afford it. A great tool is to use an offset account. An offset account acts a lot like a transaction account. You still have full access to the funds in your offset account, but your interest payments will be reduced as the balance in the account is removed from your outstanding principal.



If you’re someone with many different types of debt, in particular, high-interest debts like credit cards, unsecured personal loans or even car payments, it might be with looking a consolidating your debts.


When you consolidate your debts, you are effectively taking out a new loan, or another mortgage, and paying out all of the other high-interest debts. This way you’re overall monthly repayment will be lower and rolled into one loan. If you can still afford the same level of repayments, it’s a good idea to keep on at that same level, so you can pay down some of those debts faster. 


Ideally, you are only taking on debt for assets that grow over time and avoiding it on depreciating assets like cars on luxury items like holidays and trips.


In terms of the impact the fixed rate cliff will have on property prices, there’s no doubt that some people will be negatively impacted which will lead to some force sales. But it will likely be the minority, not the majority.

If you are in the market, and looking for a buyers agency to assist with your search, feel free to reach out today for a free discovery call!


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