OK, it official I have given in and fixed my rates!

Giday

FYI I wanted to post this to an appropriate thread as a note, but there is none, and the one on rates seems to be debating macro economic theory out of the US so FYI....

After 2 years of saying the recovery is false, weak, unsustainable, essentially an "Economy Bear" I have conceded defeat. I was wrong!

I have no idea from what I read on the economy as to where it is going. Doom to come, boom to continue. It makes no sense. So when is doubt, use fundamentals I say...so I asked myself:

Will rates go up? very likely.
How much? at least 0.25%, possible 0.5% , chance of 1%!
When?, first two quarters, then rest of year.
Will banks raise without RBA, most likely
Will banks Banks raise above RBA, very very likely.
Can gov do anything to stop this? LOL :D No.

Will rates go down, very unlikely
If so by how much? 0.25%.
When? when a major disaster hits.
Is that likely? yes but we have then all the time and it still goes up???

So I do know I paying with a 0.8% discount 7.01%

I can get 7.1% fixed for three years on 80% of my debt and increase my borrowing capacity due to increased valuations.

Rates need only go up 0.25% and I am ahead and have locked in today's valuations and ahead by 0.15%. If they stay the same, I have got more borrowing and only paying 0.09% more. If they go down some thing bad has happened.

So I have followed the logic of above and locked at 7.1% for three years. Not bad considering. What you do you think?

Peter 14.7
 
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Hey Peter,

when things are uncertain (and they certainly are), go for certainty :p .........viz, locking in your largest investment outgoing, being interest rates

Nothing right or wrong about it. Whether you beat the bank/lender is always an unknown, unless those who locked in at end of 2009 (should be laughing by now) however for me fixing is all about SANF. I don't gamble :cool:

I know and budget for what is my largest fixed expense. I only do it on assets I am sure I don't need/want to sell within the fixed term.

I have a mixture of fixed and variable at present. My fixed one comes off in a little over a year. It was locked up for five at 7.2 % in early 2007. It is a large asset and the surety I have had in the interim (it is positive cashflow in middle Sydney) has been priceless for peace of mind ;)

For me keeping a mix is suitable to my portfolio and pretty conservative LVR's at present. At the end of the day, to each their own.......stage of life, amount of borrowings, required flexibility, appetitie for risk, etc., etc.
 
I locked in some in 2009. After 15 months, I'm about to be in front cumulatively. Always a tough call to make.
 
Your collective votes of confidence assures me.

AND to add cream to the cake, I have actually increased my lending with CBA.

You see what I did was buy three IPS in 2007.

Each had a loan of 80% lvr against purchase price with the remaining 20% and buying costs coming from investment LOC. With the moved to fixed two now cover the 20% plus costs themselves totally and one covers the 100% but not costs ( a valuation just short on this one).

But in I doing this I expected bank to lower LOC balance of $239k by $160k (the three loans make up) to keep exposure the same but nope, they have keep me at $239k. So now I am cashed up to go again! Effectively freed up another $160k in equity in LOC!

Of course dearest wife awaits new PPOR (which we have the cash set aside for) and I think if I even looked at buying a new IP she would "go postal" so new house is next.

Feeling pretty proud with myself at the moment.

Peter 14.7
 
whatever works for the person !


Slight tangent

Next purchase best not with CBA though perhaps.........lotsa exposure to the one lender may make things hard if and when the cards turn a little

ta
rolf
 
I have a mixture of fixed and variable at present. My fixed one comes off in a little over a year. It was locked up for five at 7.2 % in early 2007. It is a large asset and the surety I have had in the interim (it is positive cashflow in middle Sydney) has been priceless for peace of mind ;)

Agree. I was originally locked at 7.65% for five in mid 2007 but broke in late 2008 to ride it down. Break fee was reasonable and no other costs. This time no costs at all and refixed for another 3years at 7.1%. So that takes me out to end 2013 from mid 2007 a total of 6.5 years.

I had planned to fix middle 2009 for five years for 5.99% but held out for too long. I was on 4.9% variable at the time.

I write not to gloat to to agree with you. I usually fix for SANF.

So now if no more rises come, then so be it. One IP is still variable but that is heavily + cash flow so rises don't hurt as much and I can sell if I need the cash being variable.

The irony is 7.1% is still really low based on my investment lifetime. My first house was fixed at 13.5%, then IPS at 10.5%. The newbies think 8% is bad.
Best fixed was 6.1% for five years 2003 to 2007.

regards, Peter
 
whatever works for the person !


Slight tangent

Next purchase best not with CBA though perhaps.........lotsa exposure to the one lender may make things hard if and when the cards turn a little

ta
rolf

Rolf I respect your opinion as one of the wise sages here.

SO do you mind elaborating on the risk being with one lender? Is it if they go cold on you? or limit your debt?

Peter:)
 
..................The irony is 7.1% is still really low based on my investment lifetime.

Oh, me too.....displaying my vintage. :p

My first house was fixed at 13.5%, then IPS at 10.5%. The newbies think 8% is bad.

All my friends thought I was nuts when (circa 20 years ago) I fixed in some at 14.5 %. Some investment rates went over 20 % :eek:

Best fixed was 6.1% for five years 2003 to 2007.

regards, Peter

To be fair, there are different financial and demographic/consumer dynamics at play today, so of course if rates ever go anywhere near 10 % there will be many distressed folks out there. Some say that a 10 % interest rate will have the same impact as the high teens did in the early 90's. Cost of housing going beyond salary rises and other affordability conundrums that will be purported by economists who barely own their own homes or those priced out of where they choose to live rather than starting a couple of rungs lower.

I'm not sure what quotient could be created to allow for this, but IMO, even if housing has (as a multiple) not kept pace with historical affordability measures, most other things we consume or use to transport us and entertain us are far cheaper today than five, 10 and 20 years ago. ;)
 
The irony is 7.1% is still really low
Peter

It is low but 3 years isn't a long enough time for me.

I did fix my SMSF loan for 3 years but I did it at a time when the signs were for much higher interest rates.

Now I believe the situation is different and like yourself I doubt that our interest rates will go up by more than 0.5%

cheers
 
We locked in the majority at 6.89% and 6.99%

Did you perform a breakeven analysis on your perceptions of future interest rates Peter ?

After all, there are no certainties ;)
 
We locked in the majority at 6.89% and 6.99%

Did you perform a breakeven analysis on your perceptions of future interest rates Peter ?

After all, there are no certainties ;)

Not really.

Essentially I believe another 0.25% rise will come in April. At that point I go from 0.09% behind to 0.15% ahead. Any further rises in 2011 (which most predict will be another 0.5% to 1% in total) and I am covered. And before I increased my discount from 0.7% to 0.8% I had been at 7.11% so 7.10% is the same.

Drops? I do believe there is a chance of no rises in 2011 if Europe falls over, which it may. I feel a 0.25% drop is slim chance if Europe falls over really bad, which it may. But I also come to the conclusion 2010 onwards will be the rise of China, India , etc.. and what happens in Europe and US will not matter much to Australia. Our future and even present, is as the food bowl and mine to Asia. Who remembers the saying “USA sneezes and AUS catches cold”? well at the moment the USA has pneumonia and we don’t have sniffle! To illustrate my point.

Furthermore my goal was not to save $ per say (as I could have covered this rise as all prop are positive cashflow) but to wait for CG growth so each property could hold its own debt in its own loan. I prefer my properties to be clear and defined debt against each one and not cross collateralized. I not have this on all but one.

Had I been able to do this earlier I would have fixed in the 6% range and yes, for five years but I contacted the local branch three times and each time servicing came up as an issue but they could not really explain why. I guess they didn't know how to include bus income. Now with the CBA broker it is all good and I still have $239k on investment LOC to apply to new purchases.

So I plan to build my new home on existing block by June 2011and that will free up the existing heritage home on the block for rent at $250 a week, either as standard rental or Bnb. That is effectively another IP but no debt as the new home is promised to wife anyhow. Does this make sense?

So July 2011 to end 2011 I will look at another 2 to 3 IPS in the best area at the time. That is the strategy!

Regards and Happy New Year to All

Peter 14.7
 
Personally I don't worry too much about fixed rates, but only grab them in extreme bargain situations such as in the middle of the GFC when they were extremely attractive. Outside of extreme situations like that, its really nothing more than gambling to me. You can win on the way up and lose on the way down. Overall I reckon it works out just about the same if you stick with variable and then of course you save on fees. It's surprising how quickly the atmosphere can do a complete turnaround from rates expected to rise and rise, to oh they've suddenly risen enough and now they're staying put or on the way down slightly.. I'd rather focus more on what I'm investing in rather than gamble in this kind of climate with what's going to happen.

The number of people who were stuck on scarily high fixed loans when the GFC hit was really shocking. They were hit with 20-30k exit fees from their banks if they wished to break free and "benefit" from the record low rates.. That's a risk that I don't want to be exposed to at any time, but like I said, if the rates ever drop enough to stupidly low rates again, I would snap up a bargain fixed..
 
As opposed to variable rates where you lose on the way up and win on the way down?

We put Alexlee. :)

In reply to Recruit 2, I see fixing as "taking the gamble out". It is goes down, so what, if goes up, I can lose my investments!

May I ask Recruit 2 (no offense) are you under 40 and hence did not experience the pain of the 1990 recessions and rates of 20%. I ask as anyone who did (me included) was scarred and always retains a lingering fear and respect for interest rates.

I know things are different now AND I don't expect BUT also don't discount completely seeing 10% or 11% rates in 2 years time.

The last tick for me was the 0.8% discount I got from CBA. If you read the fine print the bank can take this way anytime if they want.

There is every chance the banks will look at this if their margins are squeezed from overseas. Why? It is politically a win. Only rich PPOR owners and investors get the discounts. Not battlers. I don't see Swan and Gillard going the banks because my IPS have just cost me more, do you.

Fixing is an insurance policy for me.

Peter 14.7
 
Personally I don't worry too much about fixed rates, but only grab them in extreme bargain situations such as in the middle of the GFC when they were extremely attractive.

i'm a bit like this myself.

i did go thru the 20% rates of the 80's, but watched those who locked in at 14% screaming as rates dropped to under 10% within months.

i have watched rates go up and down ever since - usually on a 3 year (give or take 6 months) cycle from peak to peak, or trough to trough - hence i locked in everything i could lay my hands on during the gfc at 5.19% for 3 years. 16 months to go.

everything we've bought since, we've kept on variable with a substaintial buffer currently invested at high interest and are buying stock standard, tenant proof places, for cashflow.

when the next cycle comes around - in around another 18mths if 25 years of history is to repeat - i'll be paying off most of the ppor mortgage when it comes off fixed with the current buffer monies, and locking in everything else again (hopefully another 4 purchases between now and then).

i know it's a gamble, but one i am more than comfortable with.
 
Rolf I respect your opinion as one of the wise sages here.

SO do you mind elaborating on the risk being with one lender? Is it if they go cold on you? or limit your debt?

Peter:)

sorry for late reply

Just as a matter of risk management as you have already mentioned

Then there are others which are more macro/global than your individual circumstances.

Aus banks are very stable, but not immune to stupidity which may see one end up with locked up equity, a request to leave etc.

This is usually never a problem......until it becomes one, if you have 2 props it wont be an issue usually.

The larger your portfolio, and the more active you become, the more concern you may have.

The major reason we tend to stick with one lender over and beyond a "reasonable" limit is for convenience.

The reduced rates and fees argument is usually not tangible once you have the perspective that a lender is a one sided business partner, once they say no more it may take u months to sort.

The other reason we tend to use the one lender more than we should is a misguided sense of loyalty, either to the lender or the person directly because credit or pricing did us a special deal.

Being on a favour with a lender might be the worst place to be when a borrower, the lender or the market go to custard

ta

rolf


ta
rolf
 
Well , I will close this year with a "thanks" for feedback and comments.

I have been here since 2003 , mod form 2004 to 2007, and I do so, not to gloat or teach but to get another opinion to mine and another expert's view so I can consider it.

What a wealth of knowledge we have here and all, for price of your time.

Happy New Year - may your health be good and all your 2011 purchases be cashflow positive!

Peter 14.7
 
Well done Peter,

I have in the last two months fixed some loans for the first time ever, 3 year rates between 6.99 and 7.1, just for some insurance and diversity, about 15% of debt, would have done more but did not suit with those lenders and plans for properties etc.

I also agree 100% with ROlf about using different lenders:)
 
hi,

btw, i was thinking of fixing my rates too. but now, with the floods in QLD -> Aust GDP forecast to fall, it is unlikely (or unwise) to have a rate rise. the reverse may be true is the economy is in real bad shape.

just my 2 cents worth,
cheers,
Scott
 
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