Forums / Property Investing / Help Needed! / fixed interest home loan or variable?

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  • Profile photo of s21034s21034
    Member
    @s21034
    Join Date: 2009
    Post Count: 2

    Hi, I'm buying a property in brisbane at the moment and would like to know if anyone has any advice on whether to get a fixed interest rate for my home loan?
    Is it a good idea to lock it in when interest rates could reduce further?
    Also, is it a good time to be buying right now?

    Profile photo of ShellymapleShellymaple
    Member
    @shellymaple
    Join Date: 2009
    Post Count: 15

    It is risky to have a variable rate of intrest.

    A fixed rate will help you freeze the EMI you have to pay

    Profile photo of Yuppy Hippy 101Yuppy Hippy 101
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    @yuppy-hippy-101
    Join Date: 2004
    Post Count: 44

    Hi S21034

    It depends on your personal circumstances.  Can you afford it if the interest rates go up?  Will you be able  to sleep at night or would you be lying awake at night worrying that the interest rates might go up?

    With the global economy the way it is, the interest rates will probably be low for a while, also a good time to fix your interest rate at a low rate.  You could always split your loan, have half fixed and half variable.

    I have two loans, both variable.  One of my loans was just under 10%, I was thinking at the time that I should fix it but I weathered out the storm and am now very comfortable.  A friend of mine fixed their rate when they were high, now they want to refinance at a lower interest rate but it is going to cost them $25k to get out of their current mortgage.

    How long are you planning on keeping the property for?  Take that into consideration because there will be penalties if you sell and terminate your mortgage if you fix it.

    Make a decision that is right for you and your circumstancess.

    DIYPM

    Profile photo of s21034s21034
    Member
    @s21034
    Join Date: 2009
    Post Count: 2

    Thanks for your help. I hadn't thought about splitting my loan – I'll give that some thought too.

    My husband and I are wanting to have kids soon, which means we'd be relying on a single income for a while – which would make it really tight if the repayments increased. It is for a new home that we are building and we plan on living there for 5-10 years, so I guess what I'm concerned about is if the interest rates continue to decline to really low levels and  ours will be fixed at a really low rate.

    I have very little understanding of home loans and interest rates. The bank we are considering offers a home loan with an interest rate of 5.21% – will that rate be the same for both a fixed interest and variable, or do they fix a fixed interest at a higher rate than what they advertise their variable rates to be at the moment? (generally speaking)

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    Fixed rates are based on the Bond market and have nothing to do with the Official Reserve Bank rate.

    An average variable for a loan over say $250K is 5.05% but a 3 year fixed rate is around 5.75% +.

    There are lot of disadvantages of a fixed rate loan so make sure you structure correctly otherwise you will have issues down the track.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
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    Profile photo of BreakEvenBreakEven
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    @breakeven
    Join Date: 2006
    Post Count: 80

    Ive got a few investment properties that I am considering fixing the rate on for 5 years.
    It gives me some stability and the ability to forecast incoming/outgoings.

    Ive had a quick look and found 5 yr fixed rates being offered as low as 5.95%.

    Richard, I'm interested in you view.

    Apart from less flexibility, what harm is there in my fixing the majority on my investment loans at a low rate, while still having one that is variable that I can redraw upon?

    Cheers

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,018

    BE Nothing wrong with that strategy at all and in fact we would suggest it depending on the total loan amount.

    Only downside is at the moment the SVR is about 1% less than the best 5 year fixed rate so lots of room for price movement.

    I believe as time goes on you will also see some aggressive fixed price pricing from the Banks as competition hots up. 

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of carlincarlin
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    @carlin
    Join Date: 2005
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    What's going to make competition "hot up". The Reserve Bank lowering rates hasn't. On the contrary, the fixed rates went up with the big banks and other lenders too.

    So what's going to suddenly spark some competitive fixed rates?

    cheers,

    Carlin

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Carlin

    RBA movement have nothing to do with fixed rate pricing which is controlled by the movement in the Bond Market and not the cash rate.

    At the moment the rate margin on the 3,5 & 10 year bond rates are attractive as far as lenders are concerned but if lenders are prepared to cut margins to lock in customers the rates will fall. Whilst longer term Bond rates have increased shorter term rates have actually fallen.

    Currently there is over 1% variance between the lowest lenders 5 year fixed rate and the highest.
    Dont tell me the cost of funds for 1 is 100 bps higher than the other. it is merely pricing and competitiveness.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of carlincarlin
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    @carlin
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    Thanks for explaining all this Richard.

    Seems to suggest that many who've fixed in the last few months have acted too soon???

    cheers,
    Carlin

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
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    Carlin Yes potentially.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of carlincarlin
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    @carlin
    Join Date: 2005
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    An interesting counter argument can be found in the somersoft forum thread titled something like "what will fixed rates do?"

    checkout the recently posted views of moderator keithj, who's saying fixed rates will only head north.

    cheers,
    Carlin

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

    Thanks for your response Richard and Carlin,

    Im tracking the rates and doing more research, but I expect to hold out a bit longer to see what happens.

    Thanks

    Profile photo of YossarianYossarian
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    @yossarian
    Join Date: 2006
    Post Count: 136

    Fixed rate swaps for > 3 year terms have been gently trending up for a couple of months so it is unlikely you will see any material reduction in fixed rates absent the economy going so far down the toilet the RBA panics.

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