Is it time to fix?
- Thread starter Demoivre
- Start date
Same deal if there's a chance that you'd need to release some equity during the fixed period. You can still do it - but if the lender won't allow it (policy chance, servicing issues, etc) then you have to refi which involves a break fee.
Cheers
Jamie
Fixing is a risk management strategy. It reduces your exposure to 'interest risk'.
For large portfolios, it may make sense to fix portions of the portfolio to manage this type of risk. The decision should be balanced with the point Angel's made above.
I would disagree in certain circumstances.
Security substitution is the main reason - keep at least 1 property as variable - if you want to sell one that secures a fixed rate, then substitute the IP that has a variable rate loan as security (and do a top up loan, or pay a tiny break fee if the IP you're keeping doesn't quite value up).
Also if you need to refinance to draw out equity (say the current bank gives a bad valuation or fails servicability), during the fixed period then be careful.
Personally I am fixing some to reduce interest rate risk, but only new purchases where I am using LMI, as the chance of drawing cash out to 80% during the 2 year period is small - would have to get a great capital gain.
Even if I do get a good capital gain, I can still have a good chance of drawing equity from that lender.. It's just that I am fixing only the properties that are least likely to need changes.
Personally I am fixing some to reduce interest rate risk, but only new purchases where I am using LMI, as the chance of drawing cash out to 80% during the 2 year period is small - would have to get a great capital gain.
Even if I do get a good capital gain, I can still have a good chance of drawing equity from that lender.. It's just that I am fixing only the properties that are least likely to need changes.
Isnt this more a matter of just planning where your loans are going to go?
I know which banks my next 2 properties are going and therefore can't fail serviceability as this has already been tested. Also plan ahead and know which properties need to be refinanced and leave a buffer in capacity with that bank.
Sounds like a pretty smart and balanced way of making the choice to fix.
DT i think in the current environment, lending may not be as certain as that. Plans may need to be a little adaptable to the environment. RBA could come out tomorrow and introduce some whackky restrictions. Given the soundbites coming out from there, I dont think its just paper talk anymore.
Depends which loan.
For the purchase loans, I'm not restricted as it can be any bank.
But for the deposit loans, have to choose banks I'm already with if they are fixed as they hold the (future) equity.
As for whether I can fail serviceability, it's more complicated.. as I've been buying based on order of lenders, the ones I purchased two months ago will now fail serviceability once I make next months purchases. I had to do this in order to maximise LMI usage and buy enough to meet my goals. I'd rather buy more today than tomorrow, assuming the market is rising
The new purchases are with 3 lenders so it's not guaranteed I will service for the first 1 or 2. I will have to re-test it later after annual salary index, and rent reduction from moving into one of my cheap IPs.
