How Revert Rates Can Hurt When Your Fixed Term Ends

Revert rates kick in at the end of the fixed rate or introductory rate period of a home loan, yet many borrowers are unaware of their existence.

If you don’t choose to re-fix your home loan when its term expires, the rate usually reverts to a variable interest rate. This ‘standard variable’ rate is often higher than the standard variable of the same lender. In many cases it is the highest rate of interest the lender offers.

Choosing to fix your loan again will help you avoid revert rates, but it may not be the winning solution if you end up fixing at a much higher rate than previously.

You can avoid revert rates by changing to another home loan product with the same lender, but you may have to pay a switch fee. Alternatively, you could change lenders, but this too will come at a cost.

Next time…

Revert rates are a good example of why it’s important to think through your home loan options with a long-term view in mind. A benefit to using a mortgage broker to secure your home loan is that we can do this research for you. We know the importance of checking details like what rate your fixed term will revert to.

Locking in your home loan to a fixed rate period does have its downsides but it provides the kind of certainty you can’t achieve with variable rate loans. During this period of low interest rates, fixing your loan insulates you against the constant threat of increases. Check with your mortgage broker if this is a suitable option for you.

Did you know?

A rate lock is an option you can choose when applying for a fixed rate loan. For a fee, you can lock in your interest rate for a period of time while you’re applying for and having your loan approved.

The benefit of a rate lock is that you can avoid the risk of having your rate hiked up just before settlement. If the lender happens to drop interest rates, the rate lock may or may not allow you to benefit from the lower rates. Always check the terms and conditions prior to signing up.