What Is A Revert Rate?
The revert rate is the interest rate you will pay on your home loan after your introductory or fixed-rate period ends. This period typically lasts between one and five years. When the fixed rate ends, most lenders automatically revert borrowers to their standard variable rate. That is, their standard rate at the time of revert with no discount, and it can be higher or lower depending on the market situation and your lender. This rate will usually be higher than what the lenders offer to new borrowers.Why Should I Be Aware Of The Revert Rate?
The revert rate should be on your radar because it can have a significant impact on your monthly mortgage payments. You can end up paying much more each month when your fixed or introductory rate reverts to a much higher variable rate. And if you don’t do anything about it, it can reverse the benefits you received during the fixed-rate period and may be a financial burden. Here’s what happened when one of our client’s fixed-rate term ended.Example
John got a split home loan at 2.09% in 2021, and two years later, he would come off the fixed rate and revert to the current standard variable rate of the bank, 5.09%. He decided to refinance with another lender and got a lower variable rate of 4.74%. This decreased his monthly repayments by $125.
What Are My Options When My Fixed Rate Ends?
After your fixed term has ended, here are some actions you can take:- Revert to lender’s standard variable rate: This happens automatically, as soon as your fixed or introductory period ends.
- Reprice: You can approach your bank to request a lower interest rate. Do your research thoroughly and look at what your lender is offering to others beforehand. Visit our negotiating your interest rates page for some tips.
- Re-fix: You can choose to fix your repayments again if you want a predictable monthly repayment system. However, this will be a different rate than your previous one. Lenders will re-evaluate your loan, your circumstances, and the market and offer you another fixed rate.
- Refinance: You can opt to look at other lenders that are offering lower interest rates and cashback on refinancing. Keep in mind that there are administrative and legal costs associated with refinancing.
Will Break Costs Apply To Me If I Refinance With Another Lender?
Yes, but break costs will apply to you only if you end your fixed rate before the term ends, pay more than what is in the contract or repay your loan early. Learn more about it on our break costs calculator page.5 Ways To Prepare When Your Fixed Term Is Ending
Here are some steps you can take when you are approaching the time when your revert rate will go into effect:- Know your revert rate: Before your fixed-rate term ends, you should find out what the new interest rate will be. This will help you determine how much your monthly repayments will be and if you can afford them.
- Evaluate your finances: Take a look at your current financial situation and evaluate whether you can afford the new interest rate. If not, you may have to consider refinancing or negotiating with your lender.
- Consider your options: Different options are available when your fixed term ends – from reverting to the standard variable rate to refinancing. Consider the pros and cons of each option and choose the best one for you.
- Plan for the future: If you decide to revert to the variable rate, it is important to have a plan in place in case there are further rate rises. This may involve saving more money or making extra payments on your loan.
- Reach out to the experts: Get the help of brokers who have experience in this area. They will help you understand what the likely scenario will be in each option so you can make an informed decision. Talk to a financial adviser if you are still unsure of your next step. They can help create strategies to limit financial risks. Reach out to them before your introductory or fixed rate expires so they can offer tips to help you.
