All Topics / Help Needed! / Interest Rates – 2 Fix or not to Fix..??

Viewing 11 posts - 1 through 11 (of 11 total)
  • Profile photo of BreakEvenBreakEven
    Participant
    @breakeven
    Join Date: 2006
    Post Count: 80

    My investment properties are all on variable interest rates.
    Now im in a bit of a quandary about whether to fix these rates or not.

    I can see the value of investors fixing rates, as it helps to eliminate another unforseen variable. Therefore, we are better able to forcast our finances.

    Forcasting interest rates is not my forte. What does the forum think about fixing Interest rates at the point??

    Could rates possibly be at their height (or very close too)??

    Cheers

    Profile photo of blogsblogs
    Participant
    @blogs
    Join Date: 2005
    Post Count: 418
    BreakEven wrote:


    Could rates possibly be at their height (or very close too)?? 

    Cheers

    What makes you think interest rates are close to their peak? Historically they are very low!!! Still plenty of room to keep going up-talk to someone who lived throuhg the 80's-Dad wa ssaying with every interest rate rise evryone said it would be the last and that they couldnt posibbly go any higher..that was until they went up again the next time…and the time after that…and so on…..

    Profile photo of BreakEvenBreakEven
    Participant
    @breakeven
    Join Date: 2006
    Post Count: 80

    Hi bolgs

    I dont think that they are neccessarily at their peak, just asking the question to the forum.
    Im actually leaning towards fixing my interest rates, as I fear it may go over 10%.
    That way I know exactly how much I need to accomodate each month….

    Are other investors fixing at the moment? 

    Profile photo of emptypocketsemptypockets
    Member
    @emptypockets
    Join Date: 2006
    Post Count: 35

    Why not do a mix of fixed and variable?

    Profile photo of TerrywTerryw
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    @terryw
    Join Date: 2001
    Post Count: 16,213

    The only problem with flxing is the lose of flexibility – in the near future you may want, or need, to change lenders (eg. to access equity, increase borrowing capacity etc). This should be considered too,

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    https://terryw.com.au/
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    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://Terryw.com.au/

    Profile photo of SoundOfGoldSoundOfGold
    Member
    @soundofgold
    Join Date: 2003
    Post Count: 59

    Maybe you could try to work out the dollar difference between fixing and not fixing and go from there. You may find out that the difference in dollar terms may not even cover the bank fees for doing so.

    Plus, as Terryw said, by fixing you will lose all the flexibility amongst which I would not like the inability to make unrestricted extra mortgage repayments.  

    But it will essentially also come down to your personality. If you can live with the thought of a possible interest rates rise without any stress or damage to your health than you may consider staying on variable. Of course you must be financialy ready to survive the possible rate hikes. 

    Cheers
    dk   

    Profile photo of frogwalfrogwal
    Member
    @frogwal
    Join Date: 2007
    Post Count: 9

    I think if interest rates go up another 1% that will be the peak.  I can see a 1/4 % rate rise next month. 

    Profile photo of L.A AussieL.A Aussie
    Member
    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    I agree with Terry and S.O.G;

    There was study done somewhere that I read about relating to a comparison between fixing and staying with variable rates. (I think it was in one of Margaret Lomas's books).

    The bottom line was there wasn't a lot of difference at the end of the day for investors when compared over a number of years.

    After you factor in fees for breaking fixed rates (in some cases), lost opportunities for future investment due to the restrictions that come with fixed rate loans such as no extra payments etc, plus the fact that the loan interest is tax deductible, which minimises the impact of rate changes, you may be better to stay on variable rates.

    I have done both in the past, but will now always stay with variable rates for the flexibility. Not only that, if you select your investments with rate changes taken into consideration when you crunch your numbers (I hope you are all doing this) it won't really matter if the rates go up a couple of percent.

    Having said all that, if it helps you to sleep better at night to fix the rates, then do it. You aren't worse off; just in a different position.

    Profile photo of BreakEvenBreakEven
    Participant
    @breakeven
    Join Date: 2006
    Post Count: 80

    Ive done alittle research (at the time of posting I hadnt done any), and it seems that I am better off not to fix.
    The banks seem to factor in interest increases into their fixed rates, meaning that unless there is a huge jump in a short period of time, then its hardly worth it.

    The clincher for me was flexibility, which I didnt realise was a problem (thanks Terry).
    Even if it did cost me considerably more on a variable rate, its still better for me to stay unfixed for this reason….

    Thanks

    Profile photo of v8ghiav8ghia
    Member
    @v8ghia
    Join Date: 2005
    Post Count: 871

    I believe about 1 in 5 people fix their loans at the moment, which is close to a record high. I can understand a first homebuyer or someone making a large purchase on an owner occupied home right now fixing – for an IP though most of the reasons already stated may point to variable as a more suitable option for some – depends on your plans. I almost changed out of a fixed loan a while back when I had the opportunity on a 'buy and hold CF neutral type property – chose not to, and it is still at 6.65 % for another couple of years – beats 7.49 with a monthly fee and 8.07 as the banks two other variable loan options. !  As a sidepoint, a lot of good lenders will now allow you to pay extra off a fixed interest loan at no cost or penalty, (for example up to $10,000 annually) but obviously if you are planning to sell or access equity  (if you have any) before the fixed loan term expires, you will pay $$$$$$$ to get out early.  All the best.

    Profile photo of RealEstateQueenRealEstateQueen
    Member
    @realestatequeen
    Join Date: 2005
    Post Count: 69

    v8ghia,
    I believe your very close. I work in a bank, and im the one they talk to about their home loans. I work for one of the big 4, and I would say that yes, 1 in 5 have fixed their home loans, but the important part is, 4 our of 5 are thinking about doing it. People are very scared, and im not talking about investors for the moment, im talking about first home buyers and your older generations, ones who saw what they 80's did to people with mortgages.
    I do agree, if you are a high activity investor, meaning you buy at least 2 a year, then dont fix. Especially dont fix if you have lots of equity in your property because you cant access it.
    Bottom line for most people, its an affordability issue, and if it helps you sleep at night, then do it.
    (Personally, just for the record, ive gone with the theory of diversification. I have fixed the loans of half of my properties, and left the other half as variable. I havent got all my eggs in one basket!) Say you had 10 properties, fix 5.

    Good luck everyone, and lets hope we dont see the rates from the 1980's!!

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