Equity query

[Purple]

Hi,

Could someone please help me with this one.

I am planning to fix my interest just for one year. As i heard the interest will be up pretty soon.

So before i fix this, would it be better for me to draw an equity from existing property (around $14000). I know its not much. but it can help as additional deposit for second IP. (not sure for now, depends on the house price next year). Application fee will cost $350

If for example I take an equity out but then not buying second IP, which mean it will be just in offset account, is there any disadvantage of just putting this equity money in my offset account? tax implication, more interest, etc etc?

I currently paying variable rates at 5.71%
1 year fix interest will be 6.50%

Thank you kindly

 

[wobbycarly]

Hey Purple,
I know this isn't the question you want answered, but why do you want to fix for 1 year at nearly 1% higher than your variable rate? Do you believe that variable interest rates will rise by well more than 1% in <12 months?

Simplistically, for you to be "ahead" what needs to happen with IRs is for the variable rate to rise above your fixed rate for long enough in the 12 month fixed period to balance out the extra interest you paid while your fixed rate was above the variable.

And as you are aware, going fixed will lock you in. Why not stay variable for the next 12 months? That should save you money, and give you the flexibility to refinance/draw out equity. If you were talking about fixing for 3-5 years, then that's another story!

But I'm not a finance expert.

 

[Rolf Latham]

Hiya

Fixing rates on your core loan ( not deductible?) will not affect the capacity to add on a SEPARATE variable loan to ur existing property.

This is assuming that your servcieability isnt tight !

Try and use a separate IO loan with redraw for the 14 k.

if u cant do that then make sure the offset account isnt used for parking ANY other money in, and is only used for borrowed funds, at least unti, you buy something.

ta
rolf

 

[Purple]

thanks for the reply..

from what i heard..the interest will keep on going.
this why im planning to fix interest for one year.
not really interested in fixing for 2 years because the fix int for 2 years is too high.

im currently negotiating if the bank can give me some discount on fix rates. if it is approved then it will be 6.30% which mean the real diff with current variable rates is 0.59%.

finger crossed for this.

 

[farmilor]

either way you will still be paying more than you need to ......

even if you get your discounted rate, you will need the variable rate to be at least 0.59% higher than your fixed rate for at least 6 months of your fixed term to even break even.

You're basically throwing money away. How about you stay variable and throw the money you don't seem to need my way, I'll make better use of it.