15 Year Fixed Mortgage
- Thread starter megsaletta
- Start date
I agree. A business should match it's outgoing commitments to it's income to reduce risk. Fixed IRs for 15yrs at 6.8% (CBAs rate today), rental income (rising @ 3%pa) is virtually guaranteed - this gives a guaranteed cash flow +ve investment after a few years.
I think a few posters don't appreciate that your investment objective is not betting against the bank, your objective should be to create a low risk investment. High IRs are the biggest risk - now is a really good time to eliminate that risk completely.
I also acknowledge that 15yrs is a v. long time & circumstances change. But investment planning for retirement is one of the things that should be really low on the list of things that can change. And break fees are likely to be minimal as the fixed rate is currently relatively low.
That's the key point here. I think Chillia's has a very good point about long term fixing with the current interest rates. Now if he was saying the same thing when fixed rates are at 12%pa, then it may not ring as true as there will be more risk if at some point you do need to refinance (even though the plan is B&H) plus will take much longer to reach CF+ with rent increases. With rates at the relative bottom (yes I realise they will fall a bit further, but they're still very low in the big scheme of things), it is potentially a good time to lock in for longer terms of 10-15yrs depending on your individual plans.
For example I hold two properties I intend to keep for the next 20+yrs - these could easily be fixed for 10+yrs without issue. On the other hand I have another two properties that I will forseeably sell in 2-3yrs time to finance another investment - these I would only lock in for 2-5yrs.
Only a few?
You sum this up nicely Keith. Imagine spending the next 10+ years just working out rent increases and not even having to think about IR issues.
On the downside, what would have to talk about on the Forum? Property Investment, maybe?
Great post Keith!
I think that we have to pay break cost only if the current wholesale interest rate is lower than wholesale interest rate at the time the interest rate was fixed.
If we fix our loan at the very low interest rate now or certain time this year, we will rarely pay the break cost because current interst rate is the lowest within last 45 years.
Am I right?
Definitely a big fan of fixing but at different lengths.
My plan is to have at least half of the portfolio fixed for either 7,10 or 15yr and the half spread 3-5yr. Interest rates are at their lowest for as long as I can remember and for me this is good enough. Properties in the lower half of value will have the shortest terms so any break costs will be minimal.
My plan is to have at least half of the portfolio fixed for either 7,10 or 15yr and the half spread 3-5yr. Interest rates are at their lowest for as long as I can remember and for me this is good enough. Properties in the lower half of value will have the shortest terms so any break costs will be minimal.
Hiya Zig
WBC do 20 pts on fixed
ta
rolf
WBC do 20 pts on fixed
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rolf
Hi Keith,
As an example...
If you were 5 years into a 10 year IO fixed rate with CBA say @ 7% pa...and at this 5 year mark variable rates were 9% pa...and you decided to switch to a variable rate with CBA...you are saying that break fees will be minimal right?...which seems to makes sense.
Do you think you could then immediately proceed to re-finance your CBA loan to say WBC?
Wouldn't CBA be getting short-changed here?
(ie. as you've just broken a 10 year IO fixed rate loan with them at minimal cost, then proceeded to take all your borrowings with them to another bank)
Couldn't they hit you with some exhorbitant early discharge fee for doing this?
Thanks for the clarification.
In my experience with CBA, they calculate the difference in IRs between the rate you fixed at (7%) and their fixed rate for the remaining term, NOT the current variable rate. In your eg there's another 5 yrs of the 10yr term to run, so it'd be the difference between the 7% and their prevailing 5yr rate. They seem to add a 10% fudge factor in their favour whenever I've asked for a payout figure. If the fixed rate was above the rate I fixed at, then the payout figure was LESS THAN the actual principle owing. Logically, they just add that 5yr fixed $$$ into their bucket of 5yr fixed money, and can loan out to someone else who wants to fix for 5 yrs starting today.
Other banks appear to have different (less favourable) break cost structures.... maybe CBA does these days ?
You'd do it in 2 stages - first break the fixed rate, wait a week, then refinance. CBA will ensure that they make $$$ when you break. You may also come out better off if you've fixed at a lower rate than their current fixed rate.
Depends what your contract says.... depends if they value your business.
Aha, I understand, that's interesting... a bit more complicated than I presumed!
keithj said:
Fair enough...
Depending on the bank break costs are worked out very differently. It may have nothing to do with the rate you fixed at but the wholesale rate you fixed at. For example you may have fixed at 8% when the wholesale rate was 6% and now you want to break when the wholesale rate is 3%. Your break cost are the difference between the wholesale rates 6%-3% which leaves you having to pay back 3% of the money borrowed over the remaining term of your loan.
