Fixing Rate

[srini]

Pretty sure this will come up frequently, but is anyone planning to fix interest rate?

Thinking of fixing all the IP interest rates for 1 or 2 years and leave the PPoR on std. var as a hedge.

Thoughts?

ANZ's Rates are:
1 year 6.99% p.a.
2 years 7.19% p.a.
3 years 7.34% p.a.
4 years 7.69% p.a.
5 years 7.74% p.a.
7 years 8.19% p.a.
10 years 8.14% p.a.

 

[Rolf Latham]

As long as you aware and can manage the risk on both sides of the equation.

Fixing removes the RATE risk, but introduces a bunch of ther risks that need too be considered.

Some of the obvious ones are that make sure you dont want to sell the place(s), or of rates fall you may have to pay a large break fee to change back to variable, most fixeds dont have an offset or decent size redraw etc

Then there are the "fluffy". I call them fluffy because most people dont know about them, because they WONT know about them until they occur.

A good example might be, if you have a lot of exposure, it may not be wise to have it all with ANZ because their serviceability criteria may end up with you being STUCK should u need more cash during the fixed period etc

ta

rolf

 

[srini]

All good points as usual.

On the last point, if I fix the entire portfolio with ANZ for 1 year and approach them to release equity to take a new loan to a different lender, they may not release the equity. Is that what you mean?

 

[Rolf Latham]

Hiya

I was thinking more about if you want some extra money against your portfolio.

ta
rolf

 

[srini]

Oh, ok. Current LVR is 72% and we're not comfortable going below that 75-80%.

Best case scenario is we may buy again using some of the equity.

 

[Rolf Latham]

Best case scenario is we may buy again using some of the equity.

For the benefit of others looking at this thread on fixing, the same issue of serviceability would hold you back ( if you had one that is)

Im just picking on you as an example because the questions you asked are a useful teaching tool.

ta
rolf

 

[dl2276]

Just put in for one with St George. 7.19% for 12 months, less 0.15% for professional package, less another 0.20% for prepaying interest for 12 months.

Works out the same as variable rates so assuming one interest rate rise this year, should be ahead (other than having to fund the interest prepayment).

Helps with the tax planning/cash flow this financial year.