One of the major talking points in the residential property market is the upcoming maturity of low-rate fixed rate mortgages. Towards the end of 2020, the cash rate was reduced to a record low 0.10% and stayed there until May 2022. We are all aware that since then rates have increased incredibly fast and are now at 3.60%. The record low interest rates meant that borrowers had a lower interest cost as part of their loan repayments. Many of them managed to lock in their low interest rate on a fixed term for up to a few years. In hindsight, this was a great decision. 

Borrowers who have a variable loan won’t need reminding that rates have increased rapidly. I am sure they are well and truly sick of receiving their bank’s monthly notification informing them that their interest rate is increasing once again. 

With hundreds of billions worth of fixed rate loans maturing over the next couple of years – a question on many people’s minds is ‘how will I be able to cope with higher repayments?’ 

If I were in this situation, I would be making the additional repayments now and holding the difference in cash.

For example, to use round numbers, if your current repayment is $2,500 per month and you expect your repayments to be $3,500 per month at the end of your fixed rate loan, I would be transferring the difference of $1,000 into a separate bank account right now. This would allow you to understand the impact on your regular cashflow, while also building an additional safety net that can be accessed if the repayments are proving to be difficult.  

There are many things that we can’t control in this world, such as when the RBA chooses to increase interest rates. However, we can control how we respond and what strategies we follow. This relates to everything we do as financial advisers. We can’t control investment markets or what changes the government make to superannuation and tax rates, but we can control how we plan for our client’s future as a result of these outcomes. With this in mind, we ensure that we develop strategies to optimise our client’s financial position, aligned with their goals and interests.