What is a revert rate?
Fixed rate home loans explained
Learn everything you need to know about fixed rate home loans with Selling Houses Australia host, Andrew Winter.
Video Transcript
Hi, I’m Andrew Winter, host of Selling Houses Australia.
With years of property market experience under my belt I know for a fact that stability can
be invaluable when it’s needed.
And if you’re looking for a bit of stability and security when it comes to your home loan,
then a fixed rate home loan could be just the ticket.
A fixed rate loan is, well, a home loan with a fixed rate.
But what that means is that while you are on a fixed rate home loan, your interest rate
won’t change by even a fraction of a percent.
This is absolutely perfect for anyone who wants their home loan repayments to stay where they are.
They won’t go up, they won’t go down, your home loan repayments will stay the exact
same until your fixed rate period ends.
Now a fixed rate period will typically only be between one and five years, so it’s important
to remember that a fixed rate isn’t forever.
it’s more of a buffer, to give you a few years of financial surety in which you won’t
have to worry about interest rate changes or anything like that.
While we’re here, it’s worth mentioning that fixed rate home loans generally don’t
allow for much in the way of additional repayments you could even be charged a fee for doing so.
You may be able to find a fixed rate home loan with an offset account attached, but
beware of potential pitfalls – maybe the fixed rate period is only for a year, or maybe
it’s a partial offset instead of a 100% offset.
Lenders may also choose to charge a “break fee” if you pay out or refinance your home
loan within the fixed term – and these fees can be pretty hefty!
So, if you’re the type who wants to really get ahead on your home loan or you might want
to refinance or move in the near future, a fixed rate home loan may not match your financial priorities.
But they can be perfect for a wide range of borrowers, including first home buyers, refinancers looking
for a period of stability, and honestly anyone who loves being able to
budget everything down to the last dollar with absolute certainty.
Oh, I nearly forgot to mention!
At the end of the fixed rate period, you’ll usually be moved onto your lender’s revert
rate which might not be the cheapest interest rate out there!
This makes it crucial to shop around and compare your options before your fixed rate period ends.
So, what are you waiting for? If you want to buy a home you’ll want to
compare your home loans with Compare the Market. As soon as possible!
Expert tips for understanding and avoiding revert rates
Our General Manager of Money, Stephen Zeller, wants to help borrowers avoid paying more home loan interest than they have to. He has some tips for fixed-rate homeowners.
Stephen Zeller
General Manager – Money
Know when your fixed rate term ends
Your lender can only switch you to a (likely higher) revert rate if your fixed rate term ends and you haven’t done anything to change or renegotiate your rate. Knowing exactly when your fixed term ends gives you the power to be proactive and refinance to a new loan before your lender puts you on the revert rate.
Don’t pay the lazy tax
If you want to possibly avoid that higher interest rate, you don’t necessarily need to go to all the effort of refinancing if you don’t want to. Sometimes all it takes is calling up your lender and negotiating a lower interest rate for the rest of your loan term. You could also choose to re-fix or split your home loan. Being proactive now could save you money later!
Planning on refinancing? Compare your options!
If your fixed period is ending soon and you’re looking at refinancing, why not compare your options with Compare the Market? Our online comparison tool only shows you home loans we think you’d be eligible to apply for, making it easier to compare with confidence – and potentially find a home loan that could be suitable for your needs.
Understanding revert rates
What is a revert rate?
A revert rate is the variable interest rate that a fixed rate home loan will switch or ‘revert’ to at the end of the fixed rate term. Lenders typically use their standard variable rate as their revert rate, which means it can be quite uncompetitive.
Lenders calculate their standard variable rates to use as a benchmark when pricing their advertised interest rates. The variety of interest rates on offer from any given lender will typically have been calculated by applying certain discounts to the standard variable rate, with those discounts usually coming from promotional offers and/or home loan package deals.
However, this means the standard variable rate will almost always be a lender’s highest interest rate, as it won’t have any of those discounts or offers applied to it.
How do revert rates work?
Revert rates are implemented in a fairly simple way – if your fixed rate ends and you haven’t refinanced, re-fixed, split or otherwise renegotiated your home loan rate, your home loan will likely be converted to a variable rate home loan with the revert rate attached.
Your lender will typically send you an email or letter letting you know that your fixed rate term is nearing its end and showing you the revert rate you’ll be put on if you don’t do anything. However, it pays to know for yourself when your fixed rate term is ending.
How is the revert rate determined?
A lender’s revert rate is usually the same as its standard variable rate, which is calculated based on factors including the current Reserve Bank of Australia (RBA) cash rate, profitability, and a desire to remain competitive with other lenders.
A lender’s standard variable rate will typically be significantly higher than the market average variable rate, and subsequently higher than the lender’s advertised variable interest rates. This is because a standard variable rate is calculated with benchmarking and discounting in mind, which helps lenders determine how much of a rate reduction it can apply to its advertised variable rates to make them more attractive to borrowers, while still making a profit.
What’s the difference between a revert rate and a standard variable rate?
Lenders will generally use their standard variable rate as their revert rate, meaning the difference is typically in name only. However, the two rates may not be identical, so check online to confirm their standard variable rate.
How the revert rate affects you
How can I find out my revert rate?
You can find out your lender’s standard variable rate, and subsequently their revert rate, either by checking their website or getting in touch with them via phone or email. Your lender will only have one standard variable rate, so you don’t need to worry about looking up the ‘right’ rate.
What happens if I get put on a revert rate?
If you’re put on a revert rate, two things will happen. First, you’ll now have a variable rate, meaning your interest rate can now go up and down. Second, your mortgage repayments will likely change, as the revert rate will probably be different to your previous fixed interest rate.
It’s important to note that there are no fees or explicitly negative consequences for being put on a revert rate, apart from your monthly repayments changing in size.
Can my lender’s standard variable rate change?
As standard variable rates are variable interest rates, they can (and likely will) change semi-regularly. The main driving factor for rate changes is the RBA’s monthly cash rate decision. If the RBA decides on a rate rise or a rate cut, lenders will change their revert rates accordingly.
This can affect the size of your home loan repayments, so if you’d prefer an interest rate that doesn’t change, you may want to re-fix your home loan at the end of your initial fixed rate term.
Avoiding the revert rate
How can I avoid being put on a revert rate?
You can avoid being put on a revert rate at the end of your fixed rate term in several ways, including:
- Re-fixing your home loan (either with your current lender or a new lender) and signing up for another fixed rate term
- Refinancing your home loan with a different lender, onto a more competitive variable interest
- Splitting your home loan and placing part of it on a new fixed interest rate, and the other part on a variable interest rate
- Contacting your lender to negotiate a new ongoing interest rate, be it fixed or variable.
If you choose to re-fix your home loan, at the end of your new fixed rate term you’ll be faced with this decision again. However, if you’re committed to being proactive at the end of that fixed rate term to avoid the revert rate, this shouldn’t be an issue.
Will I pay break costs for refinancing my fixed rate home loan?
If you refinance your fixed home loan before the end of your fixed rate term, you’ll likely pay break fees. These fees will vary, but things like your interest rate, loan amount, and the duration of your remaining fixed rate term will partially determine your payable break costs.
However, that doesn’t mean you can’t or shouldn’t refinance your fixed rate home loan. If you’d like to refinance your fixed rate home loan to avoid being put on a revert rate, you’ll need to communicate with your lender (and the new lender you’re refinancing with) about timing your refinance to coincide with the end of your fixed rate term.
And at the end of the day, you may not mind paying break fees if it means you can refinance sooner rather than later. Consider what might best suit your financial situation – you may even want to speak to a financial advisor or one of our Home Loan Specialists.
How long does a revert rate last for?
If you don’t take any action to refinance, re-fix your home loan or renegotiate your interest rate at the end of your fixed rate term, there’s a chance you could be stuck with a revert rate for the remainder of your loan term.
A low rate isn’t the be-all and end-all of what makes for a good home loan, but just about any borrower will be able to do better than the standard variable rate.
Meet our home loans expert, Stephen Zeller
Stephen has more than 30 years of experience in the financial services industry and holds a Certificate IV in Finance and Mortgage Broking. He’s also a member of both the Australian and New Zealand Institute of Insurance and Finance (ANZIIF) and the Mortgage and Finance Association of Australia (MFAA).
Stephen leads our team of Mortgage Brokers, and reviews and contributes to Compare the Market’s banking-related content to ensure it’s as helpful and empowering as possible for our readers.