Pro/Cons of Fixed interest on new IP

[paulz]

Hello..
I've recently purchased a new IP - it will not settle for say 3-4 months.

I will keep this IP for at least 10 years..

My dilemma is do I get a Fixed Interest loan for 2,3 or 5 years or at all ?

The answer surrounds potential interest rate at the end of the "fixed" period.. which is likely to be higher than current rates.

You can fixed a rate around..
4.99% - 2 years , 5.29% - 3 year , 5.69% 5 years.

Comments appreciated.

 

[tobe]

why does the answer surround the revert rate? Surely the answer lies with your own personal risk profile?

 

[Aaron_C]

Whydo you want to fix?

 

[paulz]

Finance Property advised - as the Fixed rates are low and lower than Variable - and i suppose about timing and how much lower they will go..

It's also about set and forget for 2,3, 5 years..

Variable as around 5.7% compared to 4.99% fixed for 2yrs.

 

[tobe]

fixed rates have been lower than variable for about 18 months now at least, so thats not really a valid reason for entertaining fixing.

If you fixed 18 months ago at 6.6% for 3 years, would you have regretted it seeing variable is now 5.5ish and fixed 5.3ish?

 

[vaughan]

There have also been a few posts recently from people who fixed for a couple of years (one was for 7 years) and now want or need to sell. The loan break fees are heart breaking.

My wife is looking at changing our ppor loan to fixed too. I cannot see much benefit: it may be possible to save a couple of hundred dollars, maybe a couple of thousand over the period; in return we give up the flexibility to sell or refinance whenever we need.

I'm happy to pay a couple of hundred a year for that flexibility.

 

[paulz]

We are talking thousands on a Loan of $470K

Break fees - are not been charged on some fixed rate products now..

http://www.ratecity.com.au/home-loans/westpac/premier-advantage-investment-fixed-2-yrs-150k

 

[Tokala]

We are talking thousands on a Loan of $470K

Break fees - are not been charged on some fixed rate products now..

http://www.ratecity.com.au/home-loans/westpac/premier-advantage-investment-fixed-2-yrs-150k

I believe the majority of the break cost, is to cover the interest that the lender would have made if the whole term of the fixed loan was completed.
Even with that loan you posted there is an interest adjustment that has to be paid if the loan is paid out early.

 

[paulz]

as i started this thread- it's for a new IP and i am planning to hold for at least 10 years... so fixed in a 4.99% rate for 2 years rather than a 5.5% variable...makes sense $2500 reduction of Interest only loan p/a on a $472K loan.

i'm not interested in breaking loan or selling up..

 

[Aaron_C]

If you want to lock in the low fixed rate then do so....just make sure you are prepared for the break costs if you need to sell/refi. If you have enough buffer then it's not really an issue.

 

[Rolf Latham]

i'm not interested in breaking loan or selling up..

neither do most people that fix and then end up paying a break fee................

life is what happens to you while you are making other plans = John Lennon.


Few things to help make a decision.

By the time you settle retail variables might be 40 pts lower than now

do you have any cash now, or do you plan to save cash over the fixed period ?

Do you have other debt or equity​

ta
rolf



ta

rolf

 

[paulz]

neither do most people that fix and then end up paying a break fee................

life is what happens to you while you are making other plans = John Lennon.


Few things to help make a decision.

By the time you settle retail variables might be 40 pts lower than now

do you have any cash now, or do you plan to save cash over the fixed period ?

Do you have other debt or equity​

ta
rolf



ta

rolf

I have Cash on the sidelines for another property purchase in the next 6 months and /or upgrade to PPOR. enough for a good deposit.

I have zero debt and paid off PPOR ($700K).. I now i can get loan out using this property as security.

I still can save about $4K per month into any offset type account

 

[Rolf Latham]

I have Cash on the sidelines for another property purchase in the next 6 months and /or upgrade to PPOR. enough for a good deposit.

I have zero debt and paid off PPOR ($700K).. I now i can get loan out using this property as security.

I still can save about $4K per month into any offset type account

I have some things worth thinking about.

If you have a PPOR with zero debt, you wont use ANY of your cash for any form of IP or related cost, since you have alluded to maube upgrading your PPOR.

Obviously you wont use PPOR as crossed security for the IPs will you .

The 4.99 loans available ( from a few lenders now) doesnt have an offset, so youd need to split the fixed with some variable.


ta
rolf

 

[paulz]

I have some things worth thinking about.

If you have a PPOR with zero debt, you wont use ANY of your cash for any form of IP or related cost, since you have alluded to maube upgrading your PPOR.

Obviously you wont use PPOR as crossed security for the IPs will you .

The 4.99 loans available ( from a few lenders now) doesnt have an offset, so youd need to split the fixed with some variable.


ta
rolf

Ok - To make this simpler

Let's say new PPOR is worth $900K with no debt as i've used cash I had.. but still saving $4K p/month.

Lender A - will lend 80% of IP and I can fixed that at 4,99%

Lender B- will lend me 20% of IP but security will be PPOR with an offset account.

It means i've borrowed 100% across 2 lenders..


thanks

 

[Rolf Latham]

Ok - To make this simpler

Let's say new PPOR is worth $900K with no debt as i've used cash I had.. but still saving $4K p/month.

Lender A - will lend 80% of IP and I can fixed that at 4,99%

Lender B- will lend me 20% of IP but security will be PPOR with an offset account.

It means i've borrowed 100% across 2 lenders..


thanks

perfect

so leave the lender B as a variable with offset and that will allow you to save against that loan unless you have a spouse with little income in which case you may be better served to park cash in high rtn at call deposit.


ta
rolf

 

[tobe]

as i started this thread- it's for a new IP and i am planning to hold for at least 10 years... so fixed in a 4.99% rate for 2 years rather than a 5.5% variable...makes sense $2500 reduction of Interest only loan p/a on a $472K loan.

i'm not interested in breaking loan or selling up..

Its only a $2500 saving if variable rates are unchanged for the whole year. If they fall further, its less, if they increase its more. Because the loan is tax deductable, depending on your tax rate, and how negative or positive geared you are, the savings are even less.

For the sake of a possible $2500 windfall Id reconsider your strategy and fix or not for other reasons.