I employee this strategy.
Fixed 4.89% expiry 3/15
Fixed 4.74% expiry 3/16
Fixed 4.95% expiry 11/16
Have approx 50/50 split variable and fixed across all borrowings.
5 year fixed rate under 5.00%
- Thread starter Marty McDonald
- Start date
I employee this strategy.
Fixed 4.89% expiry 3/15
Fixed 4.74% expiry 3/16
Fixed 4.95% expiry 11/16
Have approx 50/50 split variable and fixed across all borrowings.
Interesting that the ANZ haven't moved...yet. They usually are quicker than this.
I really need an offset but can't get one with ANZ if I fix for longer than 1 year
I really need an offset but can't get one with ANZ if I fix for longer than 1 year
You mean the bank that doesn't announce its bpt change until 2 weeks after the RBA announcement every month?
pinkboy
You mean the bank that doesn't announce its bpt change until 2 weeks after the RBA announcement every month?
pinkboy
No. I mean the bank that moves in line with the other big 3.
They might move in line but as above they do it at a set time not when the other banks move. Whereas NAB pretty much same time.
Why don't you just split the loan? Part fixed, part variable with an offset account.
Yes. It's a consideration. Just have to figure out what my savings will be over time so that the offset account covers the expected savings. And when I will need to redraw. I guess that's where a crystal ball is required!
I'm considering fixing my loan, but before I do, I want to consider all the possible reasons as to why I shouldn't.
Interest Rate drops
I'm willing to wear this as its a good trade off against my financial cash flow
Break costs
Locking it in means that if i need to sell the property there may be break costs. Willing to wear this as I do have no intention to sell.
No offset
I have other IP loans I am leaving variable
Loss of negotiation power
I cannot move lenders because I am locked in. I think this is the only one I am concerned about... but should i be? I'm already spread across 2 banks, and my next IP will be with Lender C. Locking in my rate with Lender B means I don't have the same leveraging power... am i just being silly?
Lender A will be 100% variable
Lender B will have 90% fixed, 10% variable
Lender C (haven't decided who this is) will be 100% variable
There will be pretty much even distribution of loans across all 3 lenders.
Therefore, 66% of my loans will be variable, and 33% will be fixed.
Is there anything other disadvantages I may have missed?
Interest Rate drops
I'm willing to wear this as its a good trade off against my financial cash flow
Break costs
Locking it in means that if i need to sell the property there may be break costs. Willing to wear this as I do have no intention to sell.
No offset
I have other IP loans I am leaving variable
Loss of negotiation power
I cannot move lenders because I am locked in. I think this is the only one I am concerned about... but should i be? I'm already spread across 2 banks, and my next IP will be with Lender C. Locking in my rate with Lender B means I don't have the same leveraging power... am i just being silly?
Lender A will be 100% variable
Lender B will have 90% fixed, 10% variable
Lender C (haven't decided who this is) will be 100% variable
There will be pretty much even distribution of loans across all 3 lenders.
Therefore, 66% of my loans will be variable, and 33% will be fixed.
Is there anything other disadvantages I may have missed?
You mean the bank that doesn't announce its bpt change until 2 weeks after the RBA announcement every month?
pinkboy
ANZ announce their variable rate the second friday after each RBA board meeting. They announce changes to their variable rate at any time.
Take a look at your savings habits over the last couple of years. How much have you realistically put away, based on what you have done? If you only recently bought the property (ie your financial circumstances changed), try to factor in how this affected your budget. This is a good starting point.
When you come up with a figure, add a bit more to give yourself a stretch target.
@neK Good analysis. You do loose some negotiation power by fixing, but only on the properties that are covered by fixed rates so you haven't really lost anything. The biggest disadvantage is you can't effectively move lender if you need to.
loss of flexibility. If the lender you fix with cant top up your loan, (either because of valuation shortfalls or policy etc) to use as the next deposit, you would need to break the fixed rate to move to another lender that can.
This is more important to many investors than the other reasons outlined because any 'loss' or diference in interest rate is discounted by your marginal tax rate in any case. Fixing is a hedging or risk mitigation strategy, rather than a bet against the banks in any case.
Negotiating power for further interest rate reductions is marginal at best on the remaining variable portion. Most lenders dont offer offset accounts on their fixed rates. SOme do, or has already been mentioned, leave a portion variable.
Thanks PT and Tobe.
I forgot about the ability to move lender if they couldn't do the top up.
Right now the two lenders I'm with are apparently two of the more conservative lenders in the market. Lender C will also be a conservative lender (saving the loose lenders for later).
If Lender B won't give me more money due to policy, is it really worth refinancing to a looser lender? While it would help in the short term, wouldn't it be detrimental longer term wise?
I forgot about the ability to move lender if they couldn't do the top up.
Right now the two lenders I'm with are apparently two of the more conservative lenders in the market. Lender C will also be a conservative lender (saving the loose lenders for later).
If Lender B won't give me more money due to policy, is it really worth refinancing to a looser lender? While it would help in the short term, wouldn't it be detrimental longer term wise?
I hate to say it but using conservative lenders first is a bit of a flawed strategy, especially if you fix (and potentially still costly even if you don't fix).
As you've identified, if you want or need to top up, they can't help you and you'd be forced to refinance. Even when you're not fixed, refinancing would cost about $700 - $1200, possibly a lot more if you're paying LMI for a second time.
Sadly, if you used conservative lenders first, you'll find that after buying a few IPs you'll likely run out of funds for deposits. There will likely still be lenders that would fund further purchases if you had deposits.
At this point the equity you hold will be in the properties you bought first, with the conservative lenders. At this point they're less likely to give you funds from an equity release, forcing you to refinance. It's not the end of the world (in most cases), but it costs you time and money. Great for the brokers though, more commissions!
There's no magic formula for order of lenders. ANZ is a conservative lender for investors but they have a lot of useful policies which might make them the right lender at a particular point in time. I'm just pointing out that there's more to it than working your way up a ladder.
At this point the equity you hold will be in the properties you bought first, with the conservative lenders. At this point they're less likely to give you funds from an equity release, forcing you to refinance. It's not the end of the world (in most cases), but it costs you time and money. Great for the brokers though, more commissions!
Its taken me about a day to think this point through and i think i get what you mean now.
But as long as i can refinance like you said, its not the end of the world. At which point, when determining which property to fix, do you agree that I should fix the loan on the property which I deem to have the least potential in capital growth?
Out of curiousity, what are the costs involved in refinancing? I've refinanced once, but it was a while back.
Existing Lender:
Loan discharge fee
Exit fee (i don't think this applies anymore - my loans are 4-5 years old)
New Lender
Settlement costs
What else is there?
I was looking to fix for 5 years but keeping it variable. My cba lender went to pricing n got me 1.15% off svr which brings me to 4.75%. My place of employment gives me.notices of when the cba will move its fixed rates the day after etc.... so 4.75 svr versus 4.89 fixed for five years. I am keeping $488k as svr and when i see indication of the five year fixed going up the bext day. I will fix it that afternoon to secure it.
ANZ 3 Year fixed now 5.49%
I wonder why they are not competing.
I wonder why they are not competing.
