Fixed loan and looking towards future.

[rajmegamind]

Good Evening All,

I'm currently with the Newcastle Permanent Building Society Ltd for my first PPOR . Currently in building phase for my first house and have loan running for the land with them.
I'm planning to fix the land part since the progressive loan towards the construction can't be fixed per the society. So i'm here for your expert thoughts.

There have been number of articles recently towards the increasing inflation's and RBA planning to pick up the prime lending rate. So talk is about, when the first rate hike is going to be and the likely hood is around end of this year or early next year per economists. Interesting to note that Bill Evans from Westpac has ruled any more rate cuts this year , who was aggressive of them all when it comes down to rate cuts.

I'm planning to fix to 3 or 5 years for my land land which is around 60% of my total borrowing. What you thoughts to fix for next 3 or 5 since the other 7 or 10 years looks way more expensive.

Newcastle Permanent Building Society Ltd :
Fixed Rate Loans Rate Comparison Rate**
1 Year Fixed Rate 4.49% p.a. 5.48% p.a.
2 Year Fixed Rate 4.74% p.a. 5.43% p.a.
3 Year Fixed Rate 4.89% p.a. 5.41% p.a.
4 Year Fixed Rate 5.34% p.a. 5.51% p.a.
5 Year Fixed Rate 5.59% p.a. 5.61% p.a.
7 Year Fixed Rate 6.70% p.a. 6.24% p.a.
10 Year Fixed Rate 6.70% p.a. 6.42% p.a.
Rate(s) effective as at 01 Apr 2014


ANZ :

Interest and comparison rates
Fixed term Interest rate Comparison rate1
1 year 4.94% p.a. 5.84% p.a.
2 years 4.99% p.a. 5.77% p.a.
3 years 5.20% p.a. 5.76% p.a.
4 years 5.79% p.a. 5.93% p.a.
5 years 5.94% p.a. 5.99% p.a.
7 years 7.69% p.a. 7.03% p.a.
10 yrs 7.69% p.a. 7.33% p.a.


NAB :


NAB Choice Package
Interest Rate Comparison Rate Interest Rate Comparison Rate
1 year 4.89% pa 5.87% pa 4.79% pa 5.61% pa
2 years 4.94% pa 5.79% pa 4.84% pa 5.58% pa
3 years 5.15% pa 5.76% pa 5.05% pa 5.60% pa
4 years 5.54% pa 5.85% pa 5.44% pa 5.72% pa
5 years 5.79% pa 5.93% pa 5.69% pa 5.83% pa
10 yrs 7.74% pa 7.34% pa 7.64% pa 7.38% pa


CBA:

1 Year Fixed 4.79% p.a. Comparison Rate 5.71% p.a.
2 Year Fixed 4.84% p.a. Comparison Rate 5.67% p.a.
3 Year Fixed 5.09% p.a. Comparison Rate 5.69% p.a.
4 Year Fixed 5.59% p.a. Comparison Rate 5.84% p.a.
5 Year Fixed 5.69% p.a. Comparison Rate 5.90% p.a.

Interest Rates (without Wealth Package)

1 Year Fixed 4.94% p.a. Comparison Rate 5.95% p.a.
2 Year Fixed 4.99% p.a. Comparison Rate 5.87% p.a.
3 Year Fixed 5.24% p.a. Comparison Rate 5.86% p.a.
4 Year Fixed 5.74% p.a. Comparison Rate 5.99% p.a.
5 Year Fixed 5.84% p.a. Comparison Rate 6.02% p.a

Westpac:

Term Fixed interest rate Comparison rate1
1 year 4.99% p.a. 6.01% p.a.
2 years 5.04% p.a. 5.93% p.a.
3 years 5.29% p.a. 5.92% p.a.
4 years 5.69% p.a. 6.01% p.a.
5 years 5.99% p.a. 6.12% p.a.
7 years 6.7% p.a. 6.53% p.a.
10 yrs 6.7% p.a. 6.64% p.a.

 

[Aaron_C]

All I'd say is fixing for 10 years or anywhere near that length of time will be something you will regret.

 

[Brady]

3-5 years is the absolute maximum I would suggest...

Not many people plan their lives more then 3-5 years ahead.

I would make sure wherever you go the bank meets your requirements regarding possible future borrowings.

 

[Peter_Tersteeg]

The long term average interest rate (at least in my 15 years experience) is about 7%. I would suggest that anything over 7% is likely going to cost you more regardless of where the economy goes. This eliminates everything over 5 years.

It's also quite possible that the average rate over the next decade will be closer to 6%, based on how the various economies of the developed world. This is of course complete speculation on my part.

Ultimately though, fixed rates give certainty of repayment but at the expense of flexibility. If you can only foresee your plans for a specific property or loan for the next 3 years, it might be unwise to fix for longer than that.

 

[Rolf Latham]

if you are going to sit on your equity and not do anything with it, and never sell.............then a longer fixed rate term may suit your risk profile.

If you need some level of flexibility

Cost of money is only one of many factors that may determine what is best for you now AND into the future

ta
rolf

 

[rabidz]

Thinking the same way.
5 years fixed rate already way above variable rate.
For me, the best sensible fixed rate is 3 years, which is about average variable rate

 

[RetireRich101]

a Broker indicated to me that 2nd half of last year was the lowest 3-5yrs fixed, then it edge up a little towards end of the year and remain there. Broker also said some banks are itchy to get's market share, and we may see it coming down a notch or negotiable now.

Does other Broker see this indicator with banks, say coming down under 5% for 3 year fixed?

 

[MatC]

Given this is your first PPOR its very hard to know what the future will bring, you may not like the area, your situation may change etc 3 years is probably a reasonable time given the step-up in rate for longer

 

[Rolf Latham]

Does other Broker see this indicator with banks, say coming down under 5% for 3 year fixed?

If I was any good at that I would be on my 120 m yacht In Bermuda and not on my 11 ft tinnie on the Nerang River.

ta
rolf

 

[rajmegamind]

So does everyone think the rates are going north from this year end.

From the reply I understand that 3-5 years is a good horizon. Does anybody recommend to go at max 5 years at the current rate, of course thinking the rates to climb back up ?.. Or the rates would rates would be steady for next one year till March 2015

 

[Aaron_C]

The banks make huge money from their analysts who study the yield curve. The fact that it is negative for the next 1-2 of rates seems to speak volumes for me as to what's going to happen.

 

[rajmegamind]

Forgive my ignorance, if its fixed rate can't I access equity?.
I always thought once property had some capital appreciation, use can get a line of credit or equity loan to purchase next property.

 

[Aaron_C]

You can access equity via a new loan split but you are limited to the same lender since you can't refinance in the case of a bad valuation.

 

[Peter_Tersteeg]

Forgive my ignorance, if its fixed rate can't I access equity?.
I always thought once property had some capital appreciation, use can get a line of credit or equity loan to purchase next property.

Of course you can, assuming you still meet that lenders credit criteria.

Fixing hinders your ability to move lenders which can be a problem if your existing lender won't help you.

 

[Mick C]

Also most lender's split has a min loan amount...usually around $30,000 - $50,000 depending on the lender. So your equity needs to be over that amount in order to apply for the split. + as pete mentioned cost to move lender if the valuation doesn't stack up you don't meet your current banks lending criteria for equity release.