Many borrowers could potentially receive a bill shock when their fixed terms expire this year, but a rising interest rate environment would not necessarily make fixed rate home loans out of fashion, says an expert.

Around two-thirds of fixed rates are set to expire this year according to the Reserve Bank of Australia (RBA).

The RBA made a historic move in November 2020, bringing the cash rate to an ultra-low of 0.1% to help ease the pressures from the pandemic. Back then, fixed rates were at around a low of 1.95%.

Resolve Finance managing director Don Crellin said borrowers took advantage of the low-rate environment, locking in their repayments.

“In 2020, 2021 and early 2022 we became spoilt with low fixed rate mortgages and understandably borrowers flocked to rates of 2%,” he said.

However, RBA’s aggressive stance that started in May 2022 saw the cash rate increased by 300 to 3.1%. This means that fixed-rate borrowers with expiring terms in 2023 will see rate increases of around 300bps to 400bps.

With these increases, Mr Crellin said there is anticipation for record levels of refinancing this year.

“Whilst 2022 was the year of rapid rises, 2023 is undoubtedly going to be the year of record ‘remortgaging’. The price of inaction is too high not to join the ‘remortgaging’ movement,” he said.

“Borrowers cannot afford to be complacent and accept their lender’s variable rate, without question.”

Record levels of refinancing activity, however, is already reaching record highs since late last year.

Figures from the Australian Bureau of Statistics (ABS) showed the value of owner-occupier refinancing between lenders increased 9.1% to reach a new high of $13.4bn in November. Investor refinancing also increased in the month, hitting $6.01bn

Mr Crellin said refinancing will not be dead this year, as many borrower swill still weigh their options in order to manage their repayments.

“Fixed rate mortgages will remain popular with those who need a repayment strategy that gives certainty of repayment,” he said.

Mr Crellin, however, advised borrowers to go beyond rates and consider other features such as cashback offers.

“Mortgages can be difficult to compare as there is rarely an ‘apples for apples’ comparison and the cost of borrowing should also consider fees and charges as well as factors such as interest rate and cashback,” he said.

“It is a mortgage jungle out there and the options can be overwhelming — if a homeowner simply doesn’t have the time to shop around, then they must use a mortgage broker, even if it’s just to check that they have the best deal.”


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