When a fixed rate period ends, the loan does not stay at the fixed rate and it rarely moves to the lender’s best variable rate either. Most loans roll onto a revert rate, which is often well above what the same lender offers new customers. On a $500,000 balance with 25 years left, moving from a 5.8% fixed rate to a 7.4% revert rate adds around $500 a month to the repayment. The weeks before expiry are the best window to decide what happens next.
What a Revert Rate Is
The revert rate is the variable rate written into your loan contract for when the fixed period finishes. It is usually the lender’s standard variable rate for that product, and it is set by the lender rather than by the market at the time you fixed.
Revert rates tend to sit above the discounted variable rates lenders advertise to attract new borrowers, sometimes by a full percentage point or more. Because the switch happens automatically, a borrower who takes no action can end up paying that higher rate for months or years without noticing.
How Much Your Repayments Can Change
Using the example above, a $500,000 loan over 25 years costs about $3,161 a month at 5.8%. At 7.4%, the same loan costs about $3,663 a month, an increase of roughly $500 a month or $6,000 a year.
The size of the jump depends on the gap between your fixed rate and the revert rate. Borrowers who fixed when rates were lower, and are now rolling off during a period when the cash rate has risen three times this year, face the largest changes. Lenders send written notice of the new repayment, but the notice period can be shorter than the time it takes to compare options and refinance.
The Options When Your Fixed Term Ends
Borrowers generally have four paths, and each suits different circumstances.
The first is to let the loan roll onto the revert rate. It needs no paperwork, but it is usually the most expensive option.
The second is to ask your current lender for a better variable rate or a different product. Lenders often have a lower rate available for existing customers who ask, and switching products within the same lender usually avoids a new valuation and application.
The third is to fix again, either with your current lender or a new one. A new fixed rate brings repayment certainty but also brings back the restrictions that come with fixing, including limits on extra repayments and break costs if you need to exit early.
The fourth is to refinance to another lender. Comparing the whole market can uncover a lower rate, but it involves an application, a valuation and the new lender’s serviceability assessment.
Do You Pay Break Costs When a Fixed Rate Ends?
No. Break costs apply when you exit a fixed rate before the term finishes. Once the fixed period has ended and the loan has moved to a variable rate, you can refinance or change products without a break cost, although discharge and other standard fees may still apply.
When to Start Looking
A practical time to start is around two to three months before the fixed rate expires. That allows time to compare rates, gather documents and complete a refinance so the new loan settles close to the expiry date. Starting earlier than that can trigger break costs if the refinance settles before the fixed term ends.
Borrowers considering another fixed rate can ask about a rate lock. For a fee, some lenders will hold the fixed rate on offer at application until settlement, which protects against further rises while the loan is being processed.
Split Loans and Partial Fixes
If only part of your loan is fixed, only that portion reverts, and the variable portion continues as before. When the fixed portion ends, it is a natural point to reconsider the split. Some borrowers prefer to keep a portion fixed for certainty while leaving a variable portion linked to an offset account for flexibility.
Why Your Serviceability Still Matters
A refinance at the end of a fixed term is a new loan application, so the new lender assesses your income, expenses and debts again at a buffered rate. With three rate rises this year, some borrowers may find they qualify for less than they did when they first borrowed. Lenders differ in how they treat refinancing borrowers in that position, which makes it worth comparing before the revert rate takes effect.
Key Takeaways
- When a fixed rate ends, most loans roll onto a revert rate that is often higher than the lender’s rates for new customers.
- On a $500,000 loan over 25 years, moving from 5.8% to 7.4% adds about $500 a month to repayments.
- The main options are rolling over, repricing with your current lender, fixing again or refinancing to another lender.
- Break costs do not apply once the fixed term has finished, but they can apply if you refinance before it ends.
- Starting the comparison two to three months before expiry allows time to settle a new loan close to the end date.
- A refinance is a new application, so serviceability is assessed again at a buffered rate.