Refinance and fix for 5 yrs or go for variable?

[donkey]

Im about to refinance my 190k loan and get extra cash (probably up to 250k total loan amount) to replace an old garage and purchase dividend shares (thus reducting my tax bill). I need to slightly increase my debt to avoid having to pay quarterly tax. The rent Im getting for this IP is quite high due to solid rental demand in the area.

ANZ are offering 5 yr fixed rate 4.59% which seems like a fine deal. On 250k loan amount the PCM repayment would be around $991 which seems ok.

Or should I go to variable and get a discount. The guy says he can ask the pricing team for discounts.

Its a hard decision to make. Thanks for your opinion

 

[Jess Peletier]

5 years is a long time to be locked into a loan - the rate is neither here nor there compared to the inflexibility of the product you're considering.

 

[Redom]

Im about to refinance my 190k loan and get extra cash (probably up to 250k total loan amount) to replace an old garage and purchase dividend shares (thus reducting my tax bill). I need to slightly increase my debt to avoid having to pay quarterly tax. The rent Im getting for this IP is quite high due to solid rental demand in the area.

ANZ are offering 5 yr fixed rate 4.59% which seems like a fine deal. On 250k loan amount the PCM repayment would be around $991 which seems ok.

Or should I go to variable and get a discount. The guy says he can ask the pricing team for discounts.

Its a hard decision to make. Thanks for your opinion

If its about rate - variable on 250k will be higher than 4.59% with ANZ. Closer to 5%.

The five year rates do seem attractive, but beware of the break costs. Will need to factor in long term planning of what you intend to do with the property.

Cheers,
Redom

 

[donkey]

If its about rate - variable on 250k will be higher than 4.59% with ANZ. Closer to 5%.

The five year rates do seem attractive, but beware of the break costs. Will need to factor in long term planning of what you intend to do with the property.

Cheers,
Redom

Ive had several 3 yr fixed rate loans in the past and time does pass quickly.

I plan to hold onto the house for longer than 5 yrs as the rental yield is really high on this IP

 

[Jamie M]

Hi Donkey

What's the rationale behind fixing?

Are you trying to beat the variable rate over time or do you require certainty in what your repayments will be each month?

Agree on 5 years being a VERY long time. While your intentions today are to hold the property for that long - circumstances can change.

Cheers

Jamie

 

[Rolf Latham]

Been getting quite a bit of this of late

Much of it relates to set and forget comfort factor


Had a bunch of similar post gfc lows on rates

Only needs to make sense for the person doing the fixing

Ta

Rolf

 

[jpcashflow]

Hi

Hello Donkey,

There are other lenders who are offering better pricing if you are looking at a fixed option.

Just ensure the numbers stack up

 

[Shahin_Afarin]

Not sure why anyone would consider fixing right now when there is a strong likelihood that fixed rates will have a 3 in front of them in about 5-6 months.

There is no need to lock yourself in for such a long time. Sleep at night factor is awesome but you need to understand all the negatives associated with fixing too.

 

[tpepper]

Not sure why anyone would consider fixing right now when there is a strong likelihood that fixed rates will have a 3 in front of them in about 5-6 months.

There is no need to lock yourself in for such a long time. Sleep at night factor is awesome but you need to understand all the negatives associated with fixing too.

I second that - i am looking at getting out of a fixed loan now as we want to sell to capitalise on the market - it sux that we are giving away parts of our profits
its not only for selling but you may want to refinance as you can release more equity with different lender

- i was given some good advice - which I should have listened to-
which was if you want peace of mind ie you think you can only afford that rate ie job insecurity etc thats ok but if you are doing it to beat the banks you will never beat the banks they always win!

 

[sydprop]

Its a hard decision to make. Thanks for your opinion

There is some risk if you break - though I understand a break fee generally only applies if rates have dropped. You can calculate your potential break fee and compare it to the potential benefits if rates were to rise:

https://www.commbank.com.au/persona...stment-fact-sheet-and-calculation-example.pdf



I understand the many broker comments in this thread about flexibility but the difference between 8% and 4.5% (which we have seen in the last decade) is a huge risk to mitigate.

It's not a matter of beating the bank - they are locking in a similar margin regardless of the rate. Bank cost of funds goes up when rates go up.

e.g. The gap between the interest they pay you in savings and the interest they charge you in a mortgage stays roughly similar.

In terms of an investment - think about your timeline and essentially you are locking in investment performance for that period of time. For me it is quite attractive to lock in a 15k annual profit on one of my IP's - but it is reasonably unlikely that I would have to sell.