What is your revert rate? Not sure…
If you have a fixed rate loan, the revert rate is the variable interest rate that your loan reverts to when the fixed rate term ends.
There is reportedly a “cliff” of fixed rate loans totalling hundreds of billions of dollars, expiring over 2022 and 2023. Given most fixed term loans were locked in during a low interest rate environment, this means many borrower will experience a jump in loan payments.
Lenders are seeing this as an opportunity to pick up market share. Bank and non bank lenders, will be desperate to protect their own book and grow it, so we can expect a competitive lending environment to ensue over the next 18 months.
An important question for borrowers is, if my fixed rate is about to expire, do I…
- Lock in a new fixed rate now?
- Let it go to variable and ride the curve?
- Wait and see if rates reduce in 2023 and then lock in a fixed rate?
- Or something else, like part fixed and part variable?
It is important to plan ahead and watch the loan market. Also start chatting to your broker about the best plan for you.
There is a wide divergence of opinion about what will happen to interest rates towards the second half of 2023. The ABC reported earlier this month that some interest rates actually fell recently, despite the increasing cash rate. Fixed term rates over 4 years fell, suggesting the current forecast trajectory was over shooting the mark.
Here are the current advertised residential, variable investment loan rates (principal and interest payments) with a borrowed amount up to 70% – 80% of the property’s value. Some conditions vary. How do they compare to your current fixed term rate?
Many fixed interest rates were previously locked in around 2% so this might be a big change for many borrowers. The change will impact things like negative gearing and net cash flows from investment property.
The best thing to do is speak to your broker. Or if you need a referral to one let me know and I can point you in the right direction.