As at the end of 2021, $206 billion worth of CBA's home loan book was on fixed terms, making up 38%. 

This is a near doubling from June 2020 - $109 billion - when fixed loans made up less than a quarter of the loan book.

Mid-2021 saw a large market-wide swing to fixed rate lending, at one stage making up 47% of new loans written in July.

This is largely because of the Reserve Bank's Term Funding Facility introduced in 2020, which offered more than $200 billion in cheap funding to banks over a period of three years.

CBA was the recipient of approximately a quarter of the entire TFF, or about $50 billion.

This helped push fixed lending rates sharply down and 'lubricate' the debt economy at the height of Covid.

This came at the expense of net interest margins (NIM) - CBA's fell from 2.09% to 1.98% in the span of six months, which it puts down to low-margin fixed rate home loans.

The NIM is basically the difference between interest paid and interest earned. 

Still, CBA's cash net profit after tax for the second half of 2021 was more than $4.7 billion - up 26% on the same period in 2020.

CBA chief Matt Comyn was upbeat about it.

"The bank has delivered a strong financial result in a low rate environment," he said.

"Higher cash profits were a result of continued volume growth across the business in home lending, business lending and deposits lower loan impairment expense due to the improving economic outlook, and a reduction in remediation expenses."

Refinancing boom, but what are the risks?

Recent insights from PEXA show increased mortgage competition with non-major banks muscling in on the big four's market share.

ABS lending data also shows elevated levels of external refinancing, hitting about $10.89 billion in original terms in December 2021 - up from $7.37 billion in December 2020.

When customers roll off fixed rates, they could face much higher rates than they were accustomed to if the Reserve Bank increases the cash rate.

CBA economists are pencilling in up to five rate rises between now and the end of 2023, to hit a cash rate of 1.25%.

This would consist of one 15 basis point increase, and four 25 basis point increases.

In December, CEO of Nano Home Loans Andrew Walker told about some of the risks when this glut of fixed rates roll off into variable rates.

"The thing that they need to watch is as they roll out of those fixed rate facilities that they don't get caught in the trap… of rolling out into a variable product," Mr Walker said.

"That variable product will be really expensive, will have a whole lot of hidden fees, and underlying charges.

"People ultimately forget that happens until it's too late. They realise they are paying over the odds for a period of time."

Home loan rates, particularly fixed ones, are already on the upswing as seen in the graph below.

Photo by Cameron Armstrong on Unsplash

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