Loan structure - fixed or variable?

[vaibhavr]

Hi,

How do I work out my loan structure preference for Fixed and Variable rate?
Any opinioin/expert recommendations?

I have been told that generally people go for 100% variable. But nowadays, going into a 3 years fixed rate loan would be preferred given that there may be some rates hike in 2012-13, if not in 2011, to fight off inflation. Any economic paper/article about this would be very much appreciated as well.

Thanks in advance.

regards
v.

 

[Rolf Latham]

Hi V

Really not that simple, since many things will depend on your personal needs, goals, resources, risk tolerances etc

For one borrower it might be very important to be 100 % fixed, for another that could mean poison

ta
rolf

 

[locko24]

I'll fix everything i possibly can if we ever drop below 6%!

 

[JIT]

I'm currently 50% fixed for 3 years (with I think 1 year left), 50% variable.

I would go a 50/50 split to hedge my bets, but make sure that the fixed portion is a really good rate, ideally much less than 6-6.5% pa, or 4.99% pa if you can time it well!

 

[Peter_Tersteeg]

I don't understand the mentality of a specific percentage in a split loan scenario.

Fixing is a risk management strategy. You should be looking at this as what numbers should you fix and what numbers should be variable to balance your managing of interest rate risk, verses your need for the flexibility of a variable loan.

Given that no overall loan amount is specified, those figures won't be a specific percentage, but they should be a reasonably specific figure if the risk analysis is performed properly.

 

[Rolf Latham]

I don't understand the mentality of a specific percentage in a split loan scenario.

there may be a specific need to keep some variable, ie offset, but thats not what the OP asked I suppose

Oztralians like an each way bet

ta
rolf

 

[vaibhavr]

Given that no overall loan amount is specified, those figures won't be a specific percentage, but they should be a reasonably specific figure if the risk analysis is performed properly.

I am looking at loan of 430K.

 

[JIT]

I am looking at loan of 430K.

Sorry, I would go 100% variable with a single loan of that size, but with >$1.5-$2M in total borrowings would split it.

 

[Rixter]

I fix approx 50% of total portfolio for risk minimisation to economic exposure.

That way rates have to rise twice to have the same effect as without fixing at all.

 

[delfredo]

Too late to fix, according to Mark Bouris. Best time was Feb 2009.

http://www.theadviser.com.au/breaking-news/5545-the-time-to-fix-is-gone

 

[Rolf Latham]

thanks for that del

Gee, I dont think Id be as brave as Mark, to make such a public statement...........

ta
rolf