What is a revert rate?

If you’re thinking of fixing your home loan rate, or the fixed rate you’re currently on is coming to an end soon, it’s important to consider the revert rate – it can have a big impact on your loan repayments.

What is a revert rate?

A revert rate is the interest rate your fixed rate home loan switches over – or ‘reverts’ – to after the fixed rate period has ended. It is typically a higher rate than the fixed rate a borrower is paying before reverting.

If you have a fixed rate home loan, your loan rate and repayments, will stay the same throughout the fixed term you select. But at some stage, typically after one to five years depending on your loan, the fixed term will come to an end. At that point, your home loan rate will automatically switch over to the lender’s variable revert rate unless you choose to re-fix or switch to a different loan or lender beforehand. A revert rate can also apply when a low introductory rate (sometimes called a ‘honeymoon rate’) comes to an end.

What will the revert rate be?

The revert rate will almost certainly differ from the fixed or introductory rate you’ve been paying. That matters because a change in interest rate will also impact your mortgage repayments.

The revert rate is often equal to the lender’s standard variable rate at the time of the revert, though it could be a different rate depending on your choice of lender.

Exactly what your revert rate will be will depend primarily on how interest rates have moved since you locked in your fixed rate. If rates have increased during your fixed rate term, you could find the revert rate is a lot higher than the fixed rate you’ve been paying. This is especially likely to be the case if the revert rate is your lender’s standard variable rate, because for many lenders this is not their cheapest variable rate. In this situation, your monthly mortgage repayments could rise when the fixed term ends.

On the flipside, if interest rates have dropped during your fixed rate term, the revert rate could be less than the fixed rate you’ve been paying.

Revert rates on introductory rate home loans

Introductory rate loans first appeared on the scene in Australia in the early 1990s. The idea is that you pay a low rate for a set period – often known as the honeymoon rate. After this, the rate jumps to a higher revert rate.

Intro rate home loans are not as common as they used to be, though they are still available through a number of lenders on Canstar’s database at the time of writing.

Introductory rate home loans tend to be pitched mainly at first home buyers. The low initial rate can help a first-time borrower ease their way into the habit of paying off a mortgage. A lower interest rate for the first year or two can also help make repayments more affordable in the initial period of a home loan.

Just like fixed rate home loans, introductory loans also come with a revert rate. A key difference is that unlike fixed rates, introductory rates are often variable even during the intro term. In many cases, you will also know upfront what the revert rate will be once the honeymoon rate comes to an end. This is something worth checking because the difference between the initial rate and the revert rate can be significant – potentially approaching or exceeding a full percentage point based on a sample of loans on Canstar’s database at the time of writing. This makes it important to think beyond the honeymoon period to be sure your budget can handle the higher repayments that go hand-in-hand with a higher revert rate further down the track.

What is the difference between paying a fixed rate and a revert rate?

If you currently have a fixed rate home loan, or you’re thinking about locking in your loan rate, it’s worth taking a close look at how the revert rate is determined. It could shape your future loan repayments.

As a guide, the average revert rate across Canstar’s home loans database was 4.60% as of 18 August 2022.

However, Reserve Bank of Australia (RBA) figures show that in June 2022, fixed rate loans with less than three years remaining on the fixed term had an average rate of 2.26%. So based on these numbers, homeowners approaching the end of a fixed term could potentially see their loan rate almost double when the revert rate kicks in.

Remember though, that average revert rate of 4.60% is likely to change in line with shifts in variable interest rates, including those that have already occurred over the last few months since the RBA began increasing the cash rate.

If you are considering locking in your home loan rate for, say, five years, you could pay the current average five-year fixed rate on our database of around 6.37%. The challenge is that there is no way of accurately predicting how variable interest rates will move over the fixed term. So it is extremely difficult to say what the revert rate would be in 2027 when a five-year fixed term starting today came to an end.

The upshot is that the revert rate will be different every year, and can differ for every lender. The common thread is that the longer the fixed term you select, the harder it can be to predict what the revert rate will be. That said, if you plan to lock into a fixed rate home loan, it is important to read the fine print and understand how the revert rate will be determined when the fixed term expires. If you’re unsure, ask your lender or mortgage broker.

What should I do when a fixed rate term is about to end?

Your lender should provide plenty of notice when a fixed rate term is drawing to an end. This is an opportunity to consider your next steps.

If you don’t want to get bumped onto the revert rate, you may have the option to re-fix or ‘roll over’ your loan rate.

However, the end of a fixed term offers a timely opportunity to carefully weigh up your options and check if you could save with a more competitive home loan rate or enjoy improved loan features by refinancing to a new loan with a different lender.

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