What should I do when my home loan’s fixed interest rate ends? This is a question you’ve likely googled to try and find some answers.
After all, it can feel overwhelming and confusing! Do you re-fix for a new term? Restructure your home loan? Change to a variable rate?
It can all feel like a bit too much. Don’t worry though, we’re here to help.
Here’s our advice on what to do when your home loan fixed rate is coming to an end!
What are my options?
When it comes down to it, you have three options.
You can:
- Re-fix for a new term.
- Review and restructure your home loan.
- Roll onto a variable rate.
One of the quickest ways to figure out the best plan is by using an expert... like us! Our free Mortgage Health Check service is carried out by fully qualified independent financial advisors. Complete our quick fire questionnaire and an expert will get in touch to discuss the options.
Lock in for a new term!
The most common option that Kiwi homeowners choose when their current home loan interest rate is ending, is to fix onto a new rate and new term.
When it comes to re-fixing, you have two choices: choose a low rate for a shorter period of time or pick a higher rate for a longer period of time.
Often when interest rates are decreasing, many people like to opt for a lower rate for a short time as this means they can re-fix to a cheaper rate sooner if one becomes available. This allows them to save more money. However, if interest rates are rising, like they have been doing recently, then it can be a little bit tougher to figure out what to do.
Longer term fixed rates give homeowners more certainty since repayments remain fixed for a long time. These rates definitely help make budgeting into the future easier. However, short term fixed rates will provide you with the lowest rate but less certainty as repayments remain fixed for a shorter time.
Ultimately, if you’re looking at re-fixing but struggling to know which choice to make, then you need to think about what’s more important. Certainty for your home loan? Or the lowest rate?
Review and restructure your home loan
If you have a variable income, then you may be interested in reviewing and potentially restructuring your home loan.
Two options you can choose from are:
1). Split your home loan into two chunks.
The bigger chunk stays on a fixed rate while the smaller chunk goes on a variable rate. If you do this, it’ll help you quickly pay off the smaller chunk (allowing you to possibly avoid early repayment charges and even save interest).
2). Split your home loan into a number of different fixed-rate terms.
For example: (For a $650k mortgage)
- $300k on 3 year fixed term interest rate
- $200k on 2 year fixed term interest rate
- $150k on 1 year fixed term interest rate
The benefit of doing this is that as one part of your home loan’s fixed term rate comes to an end, you’re able to make a lump sum payment towards it, typically avoiding early repayment fees. You’re also able to split your risk, ideal when interest rates rise. However, spreading your risk can also mean you may have to pay a higher rate when interest rates drop.
Just remember that having multiple loans can make things more complicated. So chat to your bank to see if restructuring is a good fit for your life and budget.
Opt for flexibility
The last option you can choose is to roll over to a variable rate. While this rate is usually higher than other options, it does give people the flexibility to make lump sum payments whenever they choose without being charged an early repayment fee. Plus, you may be able to earn FlyBuys rewards on your repayments with a variable rate!
What’s the best option?
The right option totally depends on your situation. It all comes down to what you feel will best suit your household and life. If one option will make you feel less stressed about your home loan, then choose that option!
The key thing to do is to find what is most important to you when it comes to your home loan. Is it certainty? Is it low rates? Is it flexibility? Answering these questions will help you make up your mind.
When should I make the change?
It’s a good idea to start thinking about any changes you want to make to your home loan sooner rather than later. Generally, it’s recommended to give yourself a few months to think and decide on what you’ll want to do before your current rate expires.
If you’re wanting to make major changes to the structure of your home loan then you may want to contact your bank well in advance of the current rate expiring so that any paperwork can be sorted out in a timely manner.
If you’re just going to make minimal changes (like only changing the interest rate and term but not your home loan structure) then you don’t have to worry about organising everything so far in advance. You’ll probably be able to make your changes simply through your bank’s website or mobile app.
How do I change my home loan fixed rate?
Lucky for you, the majority of banks in Aotearoa have made it easy for you to change your home loan fixed rate!
With most banks, if you want to set a new interest rate and new term, all you have to do is jump on their website or mobile app and fill out some information. It’s easy and requires little effort. The only thing to watch is that they may charge you early repayment fees or ratelock break fees. So remember to read the fine print thoroughly!
If you have plans to make major changes to your home loan (like restructuring) then you’ll want to contact your bank and discuss things. Remember, this process will take more time, so plan well ahead!
Jump on Money Compare!
Since you’re already diving into your finances, why not check out whether you can get better deals on all your other financial plans too.
The best way to do this is by heading to the relevant section on Money Compare.
At Money Compare, you can compare all your financial plans! This includes your home loan, car insurance, personal loans and much more.
You’ll save heaps of money and find the perfect plan that meets your needs!
All you have to do is: Jump on the menu above, select what you are after, enter in a few details, select filters that match your preferences and hit enter! Then you’ll see all the plans available to you. You can compare them all side-by-side on one page. It couldn’t be simpler!
Not sure if your home loan is right for you? Then request a FREE mortgage health check!
*This is an educational guide only. It is in no means specific financial advice. Please consult a professional financial advisor for any specific financial advice you may require.*
*Photo Supplied: Image by dashu83 on Freepik
