to fix or not to fix

[smiffy]

?

Hello everyone,

Im debating whether to fix my home loan. I have read that fixing part of the loan is a good idea?

Should you fix the home loan or the investment loan. Im debating that the investment loan should be variable due to the claiming the tax benefits howeve in the age this weekend they said it really doesnt matter?

Any advise would be great?

Thanks
Erica

 

[Rolf Latham]

Hi Erica

There are dozens of reasons why this may be a great idea, and conversely dozens why it might be nuts

A lot depends on ur personal data?.......

U would be well served to have a detailed chat with a credit adviser of some sort that can sort through your stuff and then provide some specfici advice

Ta
rolf

 

[Aaron_C]

If you are an active investor, fixing is probably not a good idea. If you are a set and forget type that knows for certain you won't be drawing any equity from your properties then it's not a bad idea.

 

[Peter_Tersteeg]

I'd recommend against fixing if your objective is simply to save money. I read somewhere that statistically you'd only be finanically better off 20% of the time if you fixed at any given point.

Fixing can be useful if you want to have certainty around what your repayments will be. You can afford current fixed rates, but you can't afford your loan if it goes up by 1%.

Fixing does remove some flexibility. Investors can still access equity by using a split loan facility with the same lender. Splitting between fixed and variable can also give you certainty of repayments, but the flexibility to make more repayments.

In essence, there's pros and cons. The right answer will depend on your own circumstances.

 

[engelo10]

I wouldnt be fixing yet. I think there will be more rate drops. Maybe another .5 by July this year.

Engelo

 

[ssimpson2003]

As PT Bear indicated a split loan (in my view) is the most flexible and offers you the best of both worlds. eg: if you had a 300k loan you might want to fix 200k and leave the other 100k varaible. That way if you come into money or just simply want to make extra repayments you can do so on the variable portion without penalty. The only downside as I see it, is that you can't change lenders if you wanted to without incurring early exit fees. One of the Mortgage guru's on here i'm sure will correct me if i have missed any pros/cons.

If you are purely trying to decide whether today's fixed rates are good value, well that is the million dollar question. The ANZ rate at 5.99% for 3 years is looking pretty good value to me. You really just need to ask yourself whether you believe Australia will experience poor economic times over the next 2-3 years or do you think we will power ahead on the back of the resources sector.

Personally I wouldn't be suprised to see a rate drop in March after the banks made their intentions clear. This could even be by 50 basis points, if the RBA expect banks to only pass on a portion. You could wait until after March but that in no way guarantees that fixed rates will fall even if the cash rate does. My personal opinion is that any cut in the rates will be short lived.

Good luck

 

[devo76]

I agree that split loans are a good way to go.
All my properties have two loans for this reason.

This month i have my first Ip finishing a fixed period at 7.25% :0
this is a $250,000 and $50,000 set up. Im looking at fixing the larger and keeping the smaller variable.

Likewise with IP two but i have already fixed 1/2 at 6.5% ( another bad move)
Considering fixing the second loan as its a long term hold and little equity to toy with yet.

IP 3 is a wait and see i feel.

PPOR will remain variable as i have a small loan with large cash offset so movements dont effect me greatly. My equity loan drawn from PPOR for investment purposes is currently variable but may fix as i sucked the last bit of equity out recently so needs a few years atleast to build up more equity.

My wife will be dropping bundle of joy number one any day now so for me security of repayments is taking over flexability for the next few years.
Clearly i havent won any fix/variable gambles so far so secure repayments over the next year or so while the wife is at home is far more important.
that said ip 3 will have about a 50%LVR so plenty of flexibility there.

All about whats important to your situation and what are the possibilities in your life over any potential fixed period.

 

[Peter_Tersteeg]

Personally I wouldn't be suprised to see a rate drop in March after the banks made their intentions clear. This could even be by 50 basis points, if the RBA expect banks to only pass on a portion. You could wait until after March but that in no way guarantees that fixed rates will fall even if the cash rate does. My personal opinion is that any cut in the rates will be short lived.

I don't know that a drop in RBA rates would have an effect on the fixed rates. The banks have made it clear their funding costs are no longer driven by the RBA and fixed rate have always been even more disassociated from the RBA.

The RBA may also look at the overall situation an ask themselves why bother. Better to keep the cash rate high now so they can drop it later if they really need to. Thinks aren't ideal at the moment, but dropping rates without the banks passing it on won't help anyone except the banks.

 

[ssimpson2003]

I don't know that a drop in RBA rates would have an effect on the fixed rates. The banks have made it clear their funding costs are no longer driven by the RBA and fixed rate have always been even more disassociated from the RBA.

I think we are in agreeance there

At the end of the day as Devo said its all about your personal situation. Flexibility vs security. You can have your cake and eat it too (to some extent) with a split but the portion of each comes down to your risk profile for the duration of the fix period.