Felix and Georgia Daniels's baby is due any day now.
They've enjoyed setting up a nursery in their first home, which they bought last September.
"We weren't sure if prices were going to keep going up," Felix says. "But we did know that we wanted to have a place before we started to have a family."
The $600,000 mortgage on their Canberra house is manageable for now, but they're worried about what will happen when their fixed rate of 1.89 per cent ends next October.
Their repayments will rise by about $1,000 a month.
"[We're] pretty nervous, pretty nervous. It's going to be tight," Georgia says.
"I'll have to think about how many days I go back for … maybe I'll have to go back full time, even though in an ideal world I would go back part time."
A wave of fixed-rate loans will end next year
At least $275 billion worth of fixed-rate loans with the big four banks will come to an end between July and next December.
"Almost half of loans taken out in the middle of 2021 were taken out on a fixed-rate basis, which is unusually high for Australia," CEDA economist Andrew Barker explains.
While home owners with variable mortgages have been facing regular increases as the cash rate goes up, fixed-rate borrowers are now facing a steep jump in their repayments basically overnight.
'Mortgage prisoner' risk for recent borrowers
"[It is] particularly those who bought at the peak of house prices during the pandemic who may have more problems — and they're the ones that the banks really need to monitor," Mr Barker warns.
The rise in interest rates for many of these recent buyers is likely to be exacerbated by uncompetitive variable rates that some on fixed-rate loans will roll on to.
Normally, a borrower at the end of a fixed-rate period might look at refinancing to another fixed loan or a more competitive variable rate, but Rate City's Sally Tindall warns that might not be an option for many.
"Some people may find that they can't refinance at that point in time because the equity in their property has fallen away to below 20 per cent," she says.
"So they might have to pay lenders' mortgage insurance (LMI) in order to refinance."
Mortgage broker Bruce Carr, who runs Sydney-based Loanscape, says some borrowers may be completely ineligible for refinancing, even with LMI, amid a fall in maximum borrowing capacity due to rising interest rates and tighter regulation.
"Many people who borrowed at the market peak may now be 'mortgage prisoners', unable to refinance their home loan due to not being able to re-qualify for the same loan under current lending criteria," he says.
Mr Carr estimates that maximum borrowing capacity has fallen by about 27 per cent from a peak in October 2021.
That means someone who borrowed to their maximum capacity then could not refinance, even if they purchased with a 20 per cent deposit and their home value had not fallen since.
Personal finance lecturer at Griffith University, Di Johnson, says around one-quarter of all new home owners have borrowed six times or more their income to buy their properties.
"I think there is a real hidden financial pain when you look at mortgages, because in Australia people will go without almost anything to be able to pay their rent or mortgage," she says.
Here's what you can do to prepare for a rate hike
"Start thinking about your next steps at least two months in advance [of your fixed-rate term ending]," Ms Tindall says.
"Shop around for a decent rate but also understand what your bank might be willing to offer you.
Renegotiating is one tactic at that point in time, another is to refinance."
Dr Johnson says borrowers can check what their repayments are likely to increase to and start living as if they are already on the higher payments.
"That perhaps can help people see just how much room there is or isn't in their budget and what else might need to change," she says.
"Other things people can do is also starting to make extra payments, building up a buffer, trying to save more."
If the repayments are still unaffordable, it may be worth speaking to your lender's financial hardship team. They may be able to defer loan repayments, waive fees or help consolidate your debt.
Finally, a financial counsellor from the National Debt Helpline can also offer free and independent advice.
