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Fixed-rate mortgage bomb set to go off

Thousands of borrowers on fixed-interest home loans are facing an interest rate “cliff” and could be plunged into mortgage stress by the end of the year. 

According to Finder, $29.8 billion worth of fixed-rate mortgages are due to expire by the end of 2022.

This rises to $158 billion by the end of 2023. 

This could increase repayments by as much as $10,872 a year, on average.

Head of Consumer Research at Finder, Graham Cooke said the fixed interest ‘cliff’ is a scary prospect for a lot of borrowers.

“Hundreds of thousands of Aussies will be hard hit, with many facing mortgage stress if they aren’t adequately prepared,” Mr Cooke said.

“This is a very significant spike in repayments that many will simply not be able to afford.”

An estimated $29.8 billion worth of fixed-rate mortgages are set to expire by the end of 2022 which will mean an extra $641 in monthly repayments for Aussie homeowners by Christmas.

Fixed-rate mortgages hit a peak of 46 per cent of all new home loans in July and August of 2021.

However, these low fixed rates are set to expire into variable interest rates above 5 per cent over the next 12 months.

With the average loan size of $509,422, Aussies could expect a $906 increase in their monthly repayments on the average owner-occupier home loan by the end of 2023.

Mr Cooke said borrowers should look to put any additional funds into their mortgage over the remainder of 2022, to put a buffer in place for potential higher repayments ahead.

“Very few Aussies have the emergency funds they need to handle a monthly rise of this proportion – and rate increases may not be over yet,” he said.

Finder’s Consumer Sentiment Tracker shows that 25 per cent of borrowers are already struggling to pay their home loan each month.

Mr Cooke said mortgage holders who are worried about a sharp increase in their repayments should contact their lender and make arrangements.

“Failing to make a plan with their lender could have serious consequences,” he said.

“There is still time to jump online and secure a better deal.”

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Rowan Crosby

Rowan Crosby is a senior journalist at Elite Agent specialising in finance and real estate.