According to analysis of 262 fixed rate loans by financial services comparison site Mozo, borrowers can get “stung by high revert rates” once their fixed rate terms end, unless they negotiate a more suitable rate.
For one-year fixed rates, owner-occupiers paying principal and interest can expect a rate rise of 43 basis points on average once their contract ends, with the average rate increasing from 4.02 per cent p.a. to 4.45 per cent p.a., the analysis found.
Borrowers with two-year fixed rate home loans pay on average 52 basis points higher in interest upon the end of their contract, rising from an average rate of 3.93 per cent p.a. to 4.45 per cent p.a., or 46 basis points higher for those in three-year fixed rate contracts, increasing from an average rate of 3.99 per cent p.a. to 4.45 per cent p.a.
In many cases, according to Mozo, revert rates were at least 1 percentage point higher than the fixed rate offer.
Of the 262 fixed rate loans that the comparison site analysed, 40 one-year fixed rate loans, 52 two-year fixed rate loans, and 40 three-year fixed rate loans reverted to a rate at least 1 percentage point higher than the rate borrowers were paying.
Adding 1 percentage point to the interest rate, from 4 per cent p.a. to 5 per cent p.a., on a $400,000 mortgage over 30 years would add $247 to a monthly repayment, Mozo said.
The comparison site observed that the biggest rate increases (more than 1.5 per cent p.a.) were made by lenders such as Suncorp, Bank of Queensland, HSBC, RAMS, and Arab Bank Australia.
On the other hand, AMP, Well Home Loans, Kogan Money, SCU, and State Custodians decreased their rates after a five-year fixed term by up to 1.10 per cent p.a., though Mozo noted that their rates were “relatively high to begin with”.
Mortgage Choice’s latest national home loan approval data showed that demand for fixed rate home loans fell over the month of February, accounting for 22.8 per cent of loans, down from 23.8 per cent in January and below the six-month average of 23.4 per cent.
According to Mortgage Choice CEO Susan Mitchell, the decline may be attributed to cash rate expectations and the continued fall in home values.
“Mounting speculation that the Reserve Bank may cut the official cash rate later this year may be weighing on borrower expectations around interest rates,” she said.
“These borrowers, who are expecting interest rates to fall in the near term may be less inclined to lock in to a fixed rate.”
Mozo suggested that borrowers who are approaching the end of their fixed rate home loan contract negotiate a better deal with their existing lender or shop for a better deal with different lender.