Fixed Interest

[WebBoard]

From: Mike .


Comparing Interest Rates
From: Karen
Date: 4/3/00
Time: 12:47:14 AM

I am trying to decide between the two following split loan options......

Lender 1) 50% 5 year fixed interest only @ 8.4% and 50% Variable interest only @ 6.7%......

Lender 2) 50% 5 year fixed interest only @ 7.99% and 50% Variable interest only @ 7.2%.

The loans from both lenders will cost the same per month (assuming variable rates remain constant) My question is.....should I choose Lender 1 with a higher fixed rate and lower variable rate or Lender 2 with a lower fixed rate and much higher variable rate?

 

[WebBoard]

EddyM

Reply: 1
From: Mike .


Re: Comparing Interest Rates
From: eddym
Date: 4/3/00
Time: 11:51:19 AM

Hi Karen, I'm not that experienced that I can answer you but I will be interested in what others have to say. I think it all has to do with 'perception' and where you see interest rates going. Certainly, the 7.99 fixed portion for 5 years appears good, but the variable is up. I have had recommended to me over the last few days that I take a variable loan as fixed is too expensive at present.

It would also depend on whether you would feel 'comfortable' with variable. Variable with say 'Resi' is currently 6.89% (I am only familiar with Resi as they are the ones I will be borrowing through) - I am presently in the throws of buying my second property in Adelaide. Let me know what you decide. Regards

 

[WebBoard]

Les

Reply: 1.1
From: Mike .


Re: Comparing Interest Rates
From: Les
Date: 4/3/00
Time: 6:45:54 PM

G'day Karen,

To me Lender 2 (lower Fixed) is the way to go, if choosing only between those two.

In earlier notes, I postulated that Interest rates could likely drop again once GST comes around - and I'm sticking with variable for the moment.

And on the weekend, I heard that Aussie Home Loans stated the same on the News. If you could still sleep well, consider going the lowest Variable you can find without fixing. ANY lending institute will ALWAYS let you fix at any time (almost!!) if the heat gets too much for you. Why? Probably because they LOVE to give Fixed Rate loans to people - so who do you think benefits most? And once they have your loan Fixed, just see how hard it is to get OUT of it - who's benefitting again?

It is ALWAYS a bit of a guess, and if you feel you want to fix half (which is a good way to minimise your pain if rates climb- and your joy, if rates go down), then go Lender 2. Or, maybe see if "which Bank?" is still doing their special 6.99% Fixed for 3 years. They brought it out about 4 weeks back - if it's still available, THAT could be a good way to go. In fact, to me it is an indication that THEY don't believe that Rates will go very high in the next 3 years.

You might want to check out Gee Cee's entry on 2 Feb 00 re "Interest Up 0.5%" or use "Search" to look for any use of the word "Interest".

Let's see what others think too - there are plenty of folk out there with more experience than me.

Regards, Les

Disclaimer: I am not an adviser, just a bloke with an opinion.

 

[WebBoard]

Andrew G

Reply: 1.1.1
From: Mike .


Re: Comparing Interest Rates
From: Andrew G
Date: 4/3/00
Time: 11:59:01 PM

Karen

It sounds like you are wanting to have a punt each way. Why split it 50/50? You will will then be saddled with both the best and worst of both worlds with this stratergy. What is your view of the intrest rate market (and have you had much success predicting this market in the past)?

Really a split will just give you two positions in the market (even though it is one loan). One saying the rates will rise and the other saying they will go down or stay put. The chances of both of them being a winner is exactly 0%. Now I suspect you will have a leaning to one and you will do the other trying to do the "sensible" thing.

The important question is what are you trying to achieve with the split? Will it really give you what you are after?

Personally I think you should keep your options open for a little while longer. In the next 6 months or so we should get here in Australia a product they have had in the US for some time. A 30 year fixed interest loan. Would you be interested in one of these?

Andrew.

 

[WebBoard]

Crystal

Reply: 1.1.1.1
From: Mike .


Re: Comparing Interest Rates
From: Karen ( Crystal )
Date: 4/4/00
Time: 12:26:17 AM

Jan Somers says to Fix and many others say Variable thus the 50/50 split. I like the idea of fixing because I know what the repayments will be and I like the idea of variable to take advantage of the lower interest rates. Each way bet. I would certainly look at a 30 year fixed rate! I have to make my decision now as to which lender to choose but the fixed rate I receive is not established until settlement. So I must make a decision based on today's fixed rates and receive whatever interest rate is current at time of settlement. Therefore the lender with the most competitive rates now may not be that competitive at settlement. I feel like a punter at the TAB!

 

[WebBoard]

Andrew G

Reply: 1.1.1.1.1
From: Mike .


Re: Comparing Interest Rates
From: Andrew G
Date: 4/4/00
Time: 1:51:05 AM

Don't stress it isn't that big a deal...as long as you have bought well. You have just confirmed for me what I suspected, you are running all over the place trying to do the "right" thing and as a result gone the split option. I can see you have looked at the up side of both fixed and variable. Have you really looked into the down?

Do what you want to do but don't take so much advice that you end up taking none (which is obviously think of the split). If you are running out of time always go the most flexible option (you can always change variable to fixed 3 months down the track).

I also love knowing my costs and so I love long term fixed interest (and I don't just mean 5 years). Having said that a friend of mine has worked out that if you had used fixed interest for the lsat 25 years you would have been worse off than going variable even if you got into the fixed rates at the "best" times. This was true for both 3 and 5 year rates.

As long as you have bought well it doesn't matter if you paid $20K-30K too much then a small change in interest rates doesn't matter really.

Happy hunting.

Andrew.

 

[WebBoard]

Crystal

Reply: 1.1.1.1.1.1
From: Mike .


Re: Comparing Interest Rates
From: Crystal
Date: 4/4/00
Time: 2:49:44 AM

Thanks Andrew, Some valuable advice just when I need it! I will research variable rate loans with an option to fix and discuss this option with an accountant.