Rate rises to leave 880,000 Aussies in the lurch as mortgage cliff looms

Nearly 900,000 Australians are facing a big shock as their cheap fixed-rate home loan period expires - regardless of what the RBA does today.

A so-called fixed-rate mortgage cliff is about to hit nearly 900,000 Australians who took advantage of cheap home loans during the Covid pandemic.

The Reserve Bank (RBA) provided banks access to three-year fixed rate credit as part of their response to the economic impacts of the pandemic, which was passed on to borrowers in the form of cheap three-year loans.

Those who took advantage of the loans between 2020 and 2022 are now, or will soon start, having those loans revert from their record-low fixed interest rates to variable rate loans which are much higher thanks to a slew of consecutive rate rises over the RBA’s last 10 meetings.

This means about 880,000 Australians with outstanding fixed-rate loans in early 2022 will have them expire by the end of 2023, with some borrowers to see their repayments effectively triple overnight.

RBA figures show about 880,000 Australian home loan customers will come off their fixed-rate mortgages by the end of 2023, and be subject to at least 10 rate hikes effectively overnight. Picture: NCA NewsWire / Gaye Gerard

For someone with a $550,000 loan, which is about the average loan taken out during 2020-2022 according to the Australian Bureau of Statistics (ABS), that would be an extra $891 per month in repayments.

For someone with a $1m loan, it jumps by $1620 per month.

And those numbers would only increase should the RBA decide another rate hike is needed in Tuesday’s April meeting.

Mortgage Choice CEO Anthony Waldron said their recent survey of 1000 home loan customers found 71 per cent are concerned about coming off their fixed-term rate.

“We’re concerned about how many older Australians, who may be on a pension or budgeting for retirement, are approaching the so-called ‘fixed-rate cliff’,” said Mr Waldron.

Those who took out cheap three-year fixed-rate home loans during the pandemic may be in for a shock this year. Picture: NCA NewsWire / Nicholas Eagar

“If they’re not financially prepared for the increase in their repayments, it will come as a nasty shock.

“The research showed us that home loan repayments are already the biggest monthly expense for 80 per cent of people.

“Financial stress is already an issue, and each interest rate rise exacerbates the problem further.”

While RateCity.com.au’s research director Sally Tindall said those on fixed rates shouldn’t “put their heads in the sand,” and can try take action now.

“Instead of dreading the day your fixed rate ends, consider testing out your budget now by making these higher repayments while your rate is still low,” said Ms Tindall.

“Not only will this give you comfort in the knowledge you can tackle the cliff head-on, you’ll also build up a buffer in your loan for emergencies.”

Originally published as Rate rises to leave 880,000 Aussies in the lurch as mortgage cliff looms