What is a revert rate?
A revert rate is the interest rate your fixed rate home loan returns (reverts) to after the fixed rate period or introductory rate period ends, if you decide not to re-fix your loan. The revert rate is typically higher than the standard variable rate you could get from the same lender.
If you don’t want to get bumped onto the revert rate, you may potentially pay a switch fee to change loans or face the associated costs of changing lenders. You should always think through your home loan options with a long-term view in mind, taking into account both the “for now” rate and the “forever after” rate.
So why would you choose a fixed rate loan if the revert rate is going to be higher?
Most lenders will encourage you to re-fix at the lender’s current fixed rate (not your original fixed rate).
Other lenders will let you pay a switch fee to move onto another of their home loan products. It’s always important to check first how much the fee will cost based on your loan balance, and what your overall financial position will be after switching.
You can “try out” a honeymoon or introductory rate using our CANSTAR Honeymoon Home Loan Calculator. With just a few easy clicks, you can imagine how different interest rates and fixed rate periods would affect your repayments and loan balance.
You can compare these rates with our Repayments Calculator, which shows what your repayments and total interest paid could be if you chose a standard variable home loan instead.
Why do lenders have revert rates?
Introductory rate loans first appeared on the scene in Australia in the early 1990s. They were designed by banks as an enticement for new customers. The revert rate was meant to represent the interest payments that the bank “missed out on” while you were on a lower introductory rate.
Today, they are mainly used as a choice for first home buyers because there are so many fees to pay when you enter your first year of a mortgage.
Stamp duty, legal fees, mortgage lender’s insurance… It adds up quickly to a large chunk that you have to pay when you sign on the dotted line, on top of the deposit that you’ve spent ages scrimping and saving to raise.
A lower interest rate for the first year or two can help make repayments more affordable in the initial season of a mortgage.
What is the difference between paying a fixed rate and a revert rate?
What is the average difference between paying the fixed rate period and paying the revert rate? The tables we’ve outlined below should make it clear that revert rates are higher, so they are not as competitive as the fixed interest rate you receive when you first take out a fixed rate loan.
On average, our research shows the difference is as follows:
- 1-year fixed residential loan: Average difference between fixed rate and revert rate is 0.42%.
- 1-year fixed investment loan: Average difference between fixed rate and revert rate is 0.50%.
- 3-year fixed residential loan: Average difference between fixed rate and revert rate is 0.42%.
- 3-year fixed investment loan: Average difference between fixed rate and revert rate is 0.51%.
This makes a big difference to your monthly repayment, which will be higher on the revert rate than it was during the fixed rate period.
Consumers should be careful in weighing up the pros and cons when choosing whether to let their fixed rate loan revert to a standard variable product or to begin another fixed rate term.
If you took out a fixed rate for 1 year…
On average, there’s a difference of 0.42% between the fixed rate for a 1-year fixed residential loan and its revert rate after the fixed term.
For investment loans that difference is higher, with a revert rate of 0.50% more than the fixed rate.
If you took out a fixed rate for 3 years…
On average, there’s a difference of 0.42% difference between the fixed rate for a 3-year fixed residential loan and its revert rate after the fixed term.
For investment loans that difference is higher, with a revert rate of 0.51% more than the fixed rate.
How much more expensive is the revert rate?
Nearly a hundred dollars per month, actually, at the time of writing, based on a $350,000 loan. That’s a lot of extra savings you could be putting away, or a lot more groceries you could be eating.
Of course, the revert rate will be different every year, and will differ for every product, so consumers should make sure they’re aware of it. When the time comes to refinance, change loans, or re-fix, you should carefully weigh up your options.
|Average Advertised Rate (%)||Average Revert Rate (%)||Fixed Repayment||Revert Repayment||Difference|
|1-Year Fixed Residential||4.15||4.57||$1,877.39||$1,959.44||$82.05|
|3-Year Fixed Residential||4.15||4.57||$1,876.54||$1,960.31||$83.77|
Rates current as at 1 March 2017.
|Based on $350,000, 80% LVR, and P&I repayments.|
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