Beware. The REVERT rate.

Anyone who is coming out of fixed rate in the next few months will be dreading the expiry of what now appear to be long-gone low interest rates.

But what happens when you come out of fixed rate and why should you beware?

While you may understand that your interest rate will be going up to current variable interest rate levels once your fixed rate expires, what you may not realise about your interest rate is that this 'revert rate' is often significantly higher than the standard variable rates on offer. (Note the standard variable rate in itself is rarely the cheapest home loan rate you can get).

A revert rate is the interest rate at which you 'revert' or exit into once your fixed rate expires. How many fixed rates products are set up are that while they guarantee you what was historically low interest rates in the past few years, these loans automatically 'revert' to a very high variable interest rate.

This variable rate is usually significantly higher than the base standard variable interest rate, where the base is often still higher than what you can get under one of the bank's better priced interest rates.

For many fixed home loan customers coming out of fixed rates soon, they may not realise that the rate that they will come out at is higher than they need to be paying.

If you just let your interest rate rollover to the prevailing revert rate, unless the bank offers you a better rate upon exit, you will immediately feel the impact of these higher rates.

What all fixed rate customers need to consider doing are the following 4 key points::

1) Find out what your revert rate is on your fixed rate home loan (do this 30 days out)

2) See if the bank will improve on the 'revert rate' and if so what you need to do to get it (do you need to go under their package loan, have an offset account etc?)

3) Compare what they are offering to you with what is on offer with other banks. Ask your broker. Often banks can try to attract new customers by offering a rate which is not available to existing customers

4) See if you have any cash back offers available to you. Your broker can advise you as to how you can benefit.

The important take away for all soon-to-be, exiting fixed rate customers, you must understand what your home loan is reverting to and find out what your options are. Otherwise you could find yourself on a painful and even higher interest rate than what you need to be.