If you're one of the many homeowners with a fixed rate home loan, you might be feeling quite comfortable with your monthly repayments for the time being. However, there’s one term you may not be familiar with that could impact your loan when your fixed term expires – revert rates. In this article, we explain what it is, why it's important to understand and your other options.
What is a revert rate?
A revert rate is your lender’s standard variable rate which your home loan will automatically switch to once your fixed period ends.
Revert rates tend to be higher than other deals on the market.
How do revert rates work?
There's a possibility your lender won't contact you to inform you when your fixed rate expires. Instead, it’s likely your home loan will roll onto a revert rate.
This means your repayments could increase without you knowing if you don’t keep an eye on your expiry date.
How can a home loan revert rate impact you?
With interest rates currently on the rise, your revert rate could be more than double the fixed rate you initially locked in.
If you're not prepared for the change in your interest rate, you might find yourself struggling to keep up with your repayments.
On the other hand, you can minimise the impact on your loan costs if you're able to budget for higher repayments or find a competitive offer on your home loan.
Make sure that you're getting the most out of your mortgage and avoiding any unnecessary additional costs.
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What is the difference between an initial rate and a revert rate?
An initial rate on a home loan is a starting rate with a fixed period and an end date. This means the loan eventually falls onto a revert rate at the end of its fixed term.
Did you know: The initial rate is often lower than the lender’s standard variable rate and is often used to entice the borrower.
Once the initial rate term expires, the loan falls onto the lender's standard variable rate, which may be higher or lower than the initial rate, depending on market conditions and the lender's policies.
Can revert rates change?
Yes, revert rates can change over time. The rate you roll onto when your fixed rate period ends will typically be determined by the market conditions at that time.
This means that if interest rates have risen since you first took out your home loan, your revert rate will likely be higher than it would have been if interest rates had remained stable or fallen.
How long does a revert rate last?
A revert rate will typically stay in place until you refinance your home loan or change to a different loan product.
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How do you avoid revert rates after your fixed rate loan ends?
If you're worried about the impact of revert rates on your home loan, there are 2 other options you can consider:
Option 1: Refinance your home loan with another lender
The first option to avoid revert rates is to refinance your home loan when your fixed rate ends.
It’s a smart idea to start exploring what your lender, and others, have to offer in the current market.
While you may not be able to break your loan early due to break costs, it can help to have your next loan lined up.
By refinancing, there’s a big chance you could secure a more competitive interest rate and tailor your loan to better suit your needs.
Option 2: Get a new loan with your current lender
You can also get in touch with your current lender and ask if they can offer you a lower rate than their standard variable rates. You can also explore what other products they have to offer.
If you feel uncomfortable negotiating your rate, an Aussie Broker can help and do this on your behalf. Simply book a free appointment to let us know what you’re aiming for, and we’ll take care of the rest.
Many lenders will only advertise their most competitive rates to new customers. So, their existing customers end up paying more in what we like to call ‘loyalty tax,’ which is an unnecessary extra expense.
You can ask your lender to see if they’d be willing to match these rates.
Keep in mind that not all lenders will be willing to negotiate, so it's important to go into negotiations with realistic expectations.
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Should you refinance your home loan to avoid revert rates?
If you want to avoid rolling onto a revert rate and would rather explore what’s out there, refinancing your home loan could be the right move for you.
It’s always important to weigh the pros and cons when you refinance to find out if you’ll indeed end up saving more.
Although refinancing can come with additional costs like home loan establishment fees, it’s still possible you’d save more than if your rate reverted.
How much could you save by refinancing your home loan?
While it won’t be the case that every borrower will save by refinancing, it would be worth looking into your options in the case that it does put you in a stronger financial position.
Let’s look at an example to give you a better idea of how refinancing could potentially save you.
Let’s take the average Australian home loan – a $600,000 P&I owner-occupied home loan with a 30-year loan term.
If you reverted to a 6.10% variable interest rate, your monthly repayments would shoot up to $3,636.
But instead, you decide to explore your options and you’re able to bag a loan with a 5.15% variable interest rate. Your monthly repayments would be $3,276. While they would still be higher than the original interest rate you locked into, you’d be saving $360 in interest each month.
That could mean an extra vacation per year, or extra repayments to pay down your loan’s principal.
Whether you decide to let your home loan transition onto a revert rate or refinance your loan, you have an Aussie Broker in your corner. Book an appointment to get free help from the experts and make the most of your home loan when your fixed rate ends.