fix loan rate 5 years?

[donkey]

Im trying to make a big decision whether to fix the rate on my IP at a rate 4.59% or keep it on the variable rate.

I like the certainty of the low monthly repayment for the next 5 yrs.

I dont think that Im going to want to sell in the next 5 yrs as Im getting a very good yield on the house. I intend to hold onto it to fund my retirement in years to come. Also, the level of the new debt (for my current refinance application) will be 40% leveraged

I believe that rates will certainly go up within the next 5 yrs.

What are your opinions on fixing in the current market.

 

[Brady]

Rates for most variables will be sub 4.30% in the coming month.

 

[Mick C]

4.59% for 5 years is a bit on the med-high side....
Whos this CBA?? ( Have you asked for a Discount?...you be surprised some do discount fix...)

Also 5 years is a LONG time.
You need to make sure

1. You dont plan on selling
2. No plans to refinance
3. No plans to take out equity( yes you can still take out equity...but your limited to that ONE bank..so plan for no equity is the best way to think about it...)
4. No change of purposes in that 5 years...ie from IP to PPOR ( ie no offset)

 

[Terry_w]

What if you want or need to discharge the mortgage - sale or move banks (perhaps because of serviceability reasons)

 

[spludgey]

Im trying to make a big decision whether to fix the rate on my IP at a rate 4.59% or keep it on the variable rate.

Why not fix it for three years with a lender that does it for 4%? That way you'll be better off unless the variable for year four and five goes to above 5.5%, which I think is reasonably unlikely.

 

[bob shovel]

The house always wins, so only do it if it suits your plan to fix

 

[hobo-jo]

The house always wins, so only do it if it suits your plan to fix

The house always wins regardless of what rates do. Banks make their profits on fees and interest spreads, not speculating on the short term direction of interest rates.

 

[Mick C]

The house always wins, so only do it if it suits your plan to fix

Spot on....the 3 years fixed rate ( RAW rate is currently 3.25% with most banks on average) ** Quoted the Bankwest 3 years raw rate.

Make sells it at 4% and they still make a 0.75% margin..but yes if they sell it to you for 4.29 % they still making "guarantee" 1.04% before expenses

+ On going fees ( I think i read a report which stated banks fee makes up 30% of the banks overall profit?)

 

[Shahin_Afarin]

You are just asking for it by fixing 5 years.

 

[travelbug]

You are just asking for it by fixing 5 years.

What does that mean?

 

[danwatto]

What does that mean?

The break fees are enormous.

I fixed my PPOR for 5 years the last time rates were at the bottom. I saved alot over the first few years when rates went up but that was mostly due to being lucky.

In the end, separation and needing to settle my ex meant there was a $30k break fee to pay even though only 1 year remaining.

Personally I'm still considering fixing as insurance against rate rises, but I want to wait and be sure that I have my loans setup with the right banks first and wait and see what the policy changes will be. In the future due to policy changes on servicability, we may need to refinance to a new bank each time we need to withdraw equity.. Impossible when fixed.

 

[Mthis]

how do the banks calculate fixed rate bank fees?

I'm in the same boat and looking to take advantage of the good 5 yr fixed rates (probably can get a tad above 4% if i search well over the next few weeks/months).

HOWEVER, no one (broker or bank) seems to be able to let me know the break fee if i need to sell for any reason (say a neighbor offered me a large premium over the market value for the property, or something).

I'm happy to take the punt by fixing the current rates (and also expect rates to be higher in the years to come).

 

[Brisbane Broker]

HOWEVER, no one (broker or bank) seems to be able to let me know the break fee if i need to sell for any reason (say a neighbor offered me a large premium over the market value for the property, or something).

That's because the break cost changes daily with movements in the wholesale interest rate market. It's like asking what your house will be worth in 3 years. No one can say for sure.

 

[bob shovel]

It sounds like a good deal now but over the 5 years they'll get a better deal from you not for you. Rates sound good but that will be for the first year or two then things move they'll make more money than if you were variable. Only look to fix if your finances are tight and you need security of knowing repayments, you pay a premium for that. They aren't looking after you, they have huge teams of bean counters and brains on calculators to make sure they always win.

 

[donkey]

It sounds like a good deal now but over the 5 years they'll get a better deal from you not for you. Rates sound good but that will be for the first year or two then things move they'll make more money than if you were variable. Only look to fix if your finances are tight and you need security of knowing repayments, you pay a premium for that. They aren't looking after you, they have huge teams of bean counters and brains on calculators to make sure they always win.

I dont think that I will be paying a premium when rates move back to 5% or 6% which is likely to happen before the 5 yrs is up.

The repayment at 4.59% is cheap for $250k.

the chief economist at anz recently said he doesnt think rates will rise for 3 yrs. I dont believe this. They always get it wrong. It will not be long and the RBA will be rising rates for sure. Its the way it is in the nanny state of australia

 

[Gockie]

Donkey, being fixed will give you a lot less flexibility of you decide to refinance or sell down the track like the others have said. I don't recommend losing the flexibility for the sake of possibly lower rates. You might want to sell or do something with the property a year or two down the track. You might not be thinking of doing that now, but circumstances can change....

 

[albanga]

You are just asking for it by fixing 5 years.

Well put.

I have said it once and I'll say it again, I'm yet to hear a good news storey from someone fixing (admittedly have not been in the property game as long as others).

And for those who say "peace of mind" I really don't understand this. Not sure how at ease my mind would be as I watched rates fall 2% lower than my fixed rate, or needing to sell and copping huge break frees, or wanting to refinance and same again.

 

[Gockie]

Donkey, i'm in the situation now where I want to pull out equity of a property I half fixed. The only way I would be able to do this is by either breaking the term or by refinancing with that bank. That bank won't lend me any more money. So my only option is to have the extra cost of paying the break fee and move it to another lender if I want to use that equity... (its a substantial amount of equity I would be able to pull out too. The new val is 41% higher than the valuation of just 8 months ago, plenty for an extra deposit or two). Learn from my mistake!

 

[fullylucky]

Don't fix it.

The bank controls what rate they offer you the fixed rate which is determined by a team of economists. the chances of you coming out a head is lower. Why would they offer you a rate that cuts into their own profits.

fixing loans requires extra work so this cost has to come out of somewhere so they need to make addition money on the "product" they are offering.

 

[donkey]

Well put.

I have said it once and I'll say it again, I'm yet to hear a good news storey from someone fixing (admittedly have not been in the property game as long as others).

And for those who say "peace of mind" I really don't understand this. Not sure how at ease my mind would be as I watched rates fall 2% lower than my fixed rate, or needing to sell and copping huge break frees, or wanting to refinance and same again.

you say that your 'yet to hear a good news story'.... read member 'danwatto' comment above who says: ''I fixed my PPOR for 5 years the last time rates were at the bottom. I saved alot over the first few years when rates went up but that was mostly due to being lucky. ''

I believe that we are near the bottom of the rates cycle now and that rates will definately go up in the next year or 2. This is a given....

I have no plans to refinance, pull out more equity or sell up. I plan to hold onto this house to fund my long time retirement. Thus, Im going to fix the rate and be comfortable knowing my cashflow is stable for the next 5 yrs.