How to manage the “Mortgage Cliff”

21.03.23 | Michael Brown | News

Concerns about a fixed rate “mortgage cliff” have grown as a result of the Reserve Bank of Australia’s (RBA) spate of interest rate increases.

It is, as the name implies, a phenomenon that affects homeowners who purchased a home and took out a fixed-rate mortgage. According to the RBA, this “cliff” will affect hundreds of thousands of Australians in 2023 and the years after. Having locked in a low rate, these mortgage holders have been immune to the monthly repayment hikes since mid-2022. Until now.

So, what is the mortgage cliff, and how will it affect you this year?

Mountain climbing

Many Australians took advantage of the RBA’s historic low cash rate of 0.1 percent in November 2020 by obtaining a fixed-rate loan to purchase a home or fixing their existing mortgage.

As interest rates fell between 2019 and 2022, a record number of homebuyers entered the market and took out short-term fixed loans. According to CoreLogic data, fixed-rate lending grew rapidly to approximately 64% of all home borrowing, up from an average of 15% before to the crisis.

Getting to the top

Because interest rates are typically fixed for a limited time (generally one to five years in Australia), many people are about to be hit severely by all the recent rate increases at once.

Marion Kohler of the RBA’s economic research department told a Senate Select Committee in February 2023 that the number of fixed-term loans that would expire in 2023 “… is somewhere in the high 800,000s.” Whether it instils confidence in the Reserve or not, Kohler added that this figure was a “very rough back of the envelope” calculation.

People on these fixed-interest loans have had some time to prepare for the switch to a higher variable rate. But with fixed-rate homeowners facing $1000 or more in monthly payback increases, many borrowers are concerned that they will no longer be able to afford their mortgages. Most market experts believe that if interest rates rise as projected, a household with a $800,000 loan will have to come up with more than $2000 more each month. Ouch.

Over the edge?

While some borrowers may fail to service their mortgage, the vast majority are likely to “tighten their belts” in order to make their payments. It’s still a difficult ask for consumers to suddenly find thousands of dollars simply by cancelling Netflix and skipping Sunday morning avo on toast. The average mortgage in Sydney in 2016 was a touch over $2100. Now, $3000 seems reasonable. And all at a time of famous wage stagnation.

Reigning in spending is one thing, but here are a few additional ideas to reduce the size of the cliff:

  • Request a better deal – Most lenders offer lower-interest loans if you forego extras like linked cards.
  • Get a new fixed-term loan – Protect yourself from future rate rises.
  • Divide your loan – To reduce the first shock, see whether your lender may provide a combination of fixed and variable loans.
  • Refinance – Some lenders are offering incentives to switch your loan to them.


Mortgage Broker Sydney have skilled brokers who can assist you with these alternatives.

If you’re feeling brave, you could also try approaching the problem from the opposite side:

  • Boost your income – Discuss a wage raise with your boss.
  • Quit! – Use low unemployment rates to your advantage by hunting for a higher-paying job.
  • Diversify – Explore opportunities to turn a hobby into an after-hours side hustle.


Unfortunately, Mortgage Broker Sydney’s brokers can’t really help you here…

Please contact us

We can assist you if your fixed loan is about to expire. Negotiating with your existing lender or refinancing are both excellent options, and we can assist you in locating the best offer for your specific situation.

The worst thing you can do is nothing. Our services are completely free (although lender fees and charges may apply), so call us as soon as possible to see how we can turn that cliff into a gentle slope

Contact a Mortgage Broker Sydney expert today.