Fixing Rates

Had a Q recently about whether to fix or not from a family member. Worked out I don't really know much on this subject myself as I'm happy to float along 100% variable at the moment as just not that worried yet about possible future rises.

My Q is what might be a good structure for hedging your bets? Say a combination 50/50 loan on an IP? I believe the loan is a Westpac pro package though will need to confirm.

How are investors here handling fixing at the moment and retaining flexibility for future investing?
 
tossing the same around in my head atm.

I reckon there are three considerations:
Aussie bank exposure to foreign borrowing
RBA and consumer confidence
RBA and Krudd.


1.
I researched over the weekend how badly the Aussie banking system might be hit by sub prime sequelae this year. Came away believing we are more exposed to sub prime fall out than media commentary lets on.

I had felt the RBA would hold off from further rises for the next 9 mths, letting the banks lift rates to pass on the cost of their significant foreign borrowings. I found this paper to be a very illuming read into how Aussie banks now operate.
http://www.rba.gov.au/Speeches/2006/sp_ag_220806.html

2.
However, post Christmas retail sales underscored high Australian consumer confidence (obviously based on consumer ignorance of the insights within the above excellent paper, and I now wonder if the RBA will be patient enough to hold off.

3.
And Krudd and the Swan now want a meeting with the RBA to see what can be done about sub prime impact.....more likely, he wants a briefing on a matter Labor doesn't understand.

Or Maybe Wayne thinks he can do a Keating and get the RBA to do what he wants. And you just wonder who's benefit Swan's comments about the govt not being too happy by gosh with excessive bank rate rises. It ain't for the bank's benefit, that's for sure.
 
P.S.

The one certainty I see out of this is big blue sky for rents.
IMHO, credit will tighten significantly this year ergo less new stock coming online....ergo rents up up and away....

Should take the sting out of a flattening of growth....
 
When choosing to fix rates the thing I would consider is - how many rate rises are you betting on? For how long?

At the moment, the fixed rates are now 2 rate rises ahead of what most people get in variable rates.

For example the choice between a basic variable of 7.85% and a 3 year fixed of 8.19%. Many fixed rates are 8.6%++ at the moment, but there are a couple as low as 8.19%.
Andrew - Westpac is probably going to be the 8.29% fixed rate. Their broker should be able to give them a breakdown of the costs in fixing a portion of the loan and provide the forms required (The broker won't be paid but should do it as part of the ongoing service).

I think the cheaper fixed rates probably won't last and if I wanted to fix I'd be doing it quickly.

Dan

ps one of those 8.19% rates just jumped up today.
 
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Hi Andrew,
I have purchased 2 IPs in last 3mths. Latest one has not settled yet but I have opted for fixed 3yr rate 8.19% on both. Bank manager said 8.19% wont last long. I figured I know I can handle holding costs at 8.19 and if rates are higher after 3yrs rents will be too. In the short term thought I am not worrying about what rates will do. Just my newbie logic.:D
 
Not bad logic - fixed rate expense combined with increasing rents :)
I fixed all my loans last year, I like to know what I'm up for in times like this.

They may have raised that rate already, did you opt for the rate lock?

Andrew - ANZ is 8.54% plus $10per month. I.e. 3 rate rises ahead..

Dan
 
Westpac is probably going to be the 8.29% fixed rate. Their broker should be able to give them a breakdown of the costs in fixing a portion of the loan and provide the forms required (The broker won't be paid but should do it as part of the ongoing service).

I think the cheaper fixed rates probably won't last and if I wanted to fix I'd be doing it quickly.

Dan

ps one of those 8.19% rates just jumped up today.

We have just fixed two of our loans today with RAMS at 8.59% for 3 years. As we are previous customers we are still a RAMS customer now called RHG??? Westpac are taking on the new clients. The rate is a bit higher than we wanted. Maybe should have had a broker look at it first.

Does anyone fix their LOC? Apparently we can fix the portion already used and keep the rest variable so we can still use for drawdown.

Jay
 
Does anyone fix their LOC? Apparently we can fix the portion already used and keep the rest variable so we can still use for drawdown.

Jay

Generally this is usually looked at once the balance is maxed out, or the loan balance is at a more stable level. You can't just set part of your line of credit to fixed though, you usually need to do an internal refinance to a split loan with a fixed loan and a line of credit.

Be aware of the fees involved like switch fees or application fees. You could also be up for 2 annual/monthly fees instead of one.

Does your balance go up and down? Once it's fixed you are usually restricted on how much extra repayments you can make and there are additional early repayment penalties.

Dan
 
Marc

don't think it is possible to fix the rate on a LOC.

Yes it can be done with a couple of lenders.

When I spoke to the people at RAMS they asked me if I wanted to fix the LOC. I said to them I didn't think you could. Apparently you can fix but then you can't redraw and the option was to fix the portion already used. No mention was made of having to split into 2 loans. Also you can't pay it out until the fixed term has expired or you can, but pay fees on it. As it was it has cost $295 each to fix the other 2 loans. At this stage I think I'll sit tight and see what happens. Oh to have that crystal ball.

Our balance does go up and down as we use it for some shortfall and put our Tax return back into it at the end of the year.

Jay
 
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