Earlier in the year, we wrote an article on the dreaded fixed-rate “mortgage cliff” that has been on the horizon for months, if not much longer.

However, we wanted to return to this issue after a Financial Review article a few weeks ago reported one-third of fixed-rate loans will expire between now and September.

In fact, two-thirds of fixed-rate loans are set to expire by the end of 2023, according to the RBA's October 2022 Financial Stability Review.

The remaining 38% of fixed-rate credit, which includes about 450,000 loan facilities, will expire in 2024 and beyond, the Financial Review article stated.

Unhappy, but not unexpected news, for the more than 880,000 Aussies whose fixed-rate loans will fall off the cliff edge in 2023, according to the Reserve Bank of Australia (RBA).

These loans equal around $350 billion of sorely needed credit switching to now very high variable loans - and this after being nicely cocooned from the RBA's 10 consecutive cash rate rises in 2022 and 2023.

In more bad news, there are more big numbers of Aussies whose fixed-rate loans will end next year too, with these same people already struggling - as we all are - with cost-of-living pressures, including rising grocery prices.

So, there is good reason for fixed-rate Aussies - and fixed-rate mortgages make up around 35% of all outstanding housing credit, including the fixed component of split loans - to be worried right now.

Fixed-rate mortgage cliff explained

As we discussed in our January article on this issue, the Aussies who rushed into the fray of the pandemic's extraordinarily low 0.1% interest rates in 2020-2021 are the ones now being affected by the looming mortgage cliff.

Why?

Fixed-rate loans usually expire after five years or less which means 2022-2023 is the end of the road for any such loans obtained between 2017-2021.

However, with interest rates rising 10 consecutive times between May 2022 and March 2023, these same people will struggle much more than the usual end-of-fixed-rate mortgage holders when their loans expire in 2023 - and beyond.

Metropole's Michael Yardney described the pandemic's cheap rates as a "rare period in which fixed-rate borrowing ballooned", with total housing lending and refinancing on set interest rates peaking at 46% in July 2021 alone.

And to make matters worse, refinancing either a fixed or variable loan is becoming tougher.

Interest rate rises are leaving many mortgage holders stuck in a "mortgage prison" as their borrowing capacity drops and they're no longer able to pass serviceability tests with a new lender.

Australian Prudential Regulation Authority (APRA) is not lowering its 3% mortgage "buffer" either.

What should fixed-rate mortgage holders expect in 2023 and beyond?

Fixed-rate mortgage holders falling off the mortgage cliff will need to absorb the 350 basis point uplift in the cash rate in 2022 and 2023 - or possibly more, depending on your lender's variable rate.

According to the Financial Review article we read, fixed-rate mortgage holders who took out a mortgage larger than $615,000 should expect a monthly repayment increase of more than $1,000.

Those with a $750,000 loan will need to prepare for an extra $1,215 per month increase.

Happily, there are things you can do now to prepare for the inevitable mortgage cliff fall - and the sooner you start, the better.

What you can do to soften the mortgage cliff fall

1. Talk to your lender now

Regardless of when your fixed-rate mortgage expires, this is the most important thing you should do.

Remember too that if you do nothing about your loan, your lender will most likely "roll it over" into a variable option, which may well have a higher-than-average interest rate.

So, talk to your lender now about your options, including those of another fixed-rate loan or a split loan.

Also, ask your lender how they can help you if you know you're going to really struggle with repayments when your mortgage expires.

2. Explore your refinancing options

If your current lender can't help you, consider talking to other lenders about refinancing your loan.

As we noted earlier, this may not be possible due to your borrowing capacity having now dropped but call around and at the very least, obtain some advice.

Most of all, know what your options are.

3. Change your budget and spending habits

We know you're already struggling with costs and who wants to forego that morning coffee or Netflix?

But sit down with a calculator and consider your essential priorities when it comes to food, petrol, and utility bills, while budgeting for the many extra dollars soon to be added to your mortgage repayments.

As well, know your average cash flow.

Are you currently spending less than you earn or vice versa?

Even something as simple as having a shopping list when going to the supermarket - rather than spending precious dollars on impulse buys - can save you money.

Knowing you can wipe things off your budget that aren't (really) needed can be a comfort in itself and could be crucial in softening your mortgage cliff fall.

4. Expect more interest rate hikes

Yes, we enjoyed a sorely needed rate reprieve this month - but inflation is still too high for the RBA's liking (6.8%) and governor Dr Phillip Lowe himself warned Aussies to expect more rate rises this year in his April cash rate announcement.

So again, ensure you have a budget buffer.

5. Adjust your overall real estate attitude

Property is a long-haul affair with the average Aussie holding onto a house for around 11 years, according to CoreLogic figures in 2019.

So expect changes in interest rates, home loans, and your own budget while you're a homeowner, and prepare for these changes.

Whether it's a pandemic, emergency maintenance, or a job redundancy, things change - and can change fast. 

So in the Scouts' words, be prepared!

We’re here to help

We appreciate that if you're on a fixed-rate loan, you're worried about the future.

Indeed, some of our Listing Loop team members are facing the same dreaded, and inevitable, mortgage cliff as you.

But we are here to help, especially at this time, and whether you're a first-home buyer, investor or anything in between, we can give you plenty of advice on refinancing and home loans.

And if you're planning to buy and you're particularly tired of house-hunting, we've even partnered with buyer advocates who can check out homes for you and organise sales assessments and negotiations.

Our off-market and pre-market marketplace gives you VIP access to properties so you can get in first.

Just sign up at Listing Loop or download our app.