Forums / Getting Technical / Finance / Lock-in or not to Lock-in

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  • Profile photo of wayne_owayne_o
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    @wayne_o
    Join Date: 2004
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    Yes that age old question is on my mind.  I currently have 2 investment properties and mortgaged to the max, negatively geared.  We have a small mortgage on our principle place of residence which has a line-of-credit loan which is working nicely for us. After our recent second property purchase the bank has offered 5.94% on all 3 loans, variable.  After a call to the mortgage centre yesterday they said they could offer me 5.79% if I lock in for 3 years.  I am not that clued up on the economic conditions that impacts the Reserve decision and I was hoping that someone could point me to some good resources so I could get a better idea.  Any advise appreciated. Thanks in advance.  Wayne O

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
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    Hi Wayne,

    Firstly I think you are referring to Westpac and if that's the case then they reduced their 3 Year Fixed Rates yesterday to 5.69%. Secondly, Fixing your loan is more about risk management than anything else. Anything with a 5 in front of it is a fantastic great. The cheapest over the 10 years was Westpac's Fixed rate of 4.99% which latest for 2 weeks. That said you need to understand the flexibility that you lose when you fix your loan. The other option of course is to fix a portion of your loan instead of the entire amount. 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
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    Profile photo of FreckleFreckle
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    @freckle
    Join Date: 2012
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    The pressure on interest rates is likely to be down for the foreseeable future. The global situation is a mess and deteriorating on a daily basis. My guess is that over the next 24 months there is probably a better than 50% chance the RBA will drop rates by at least 1% over that time. If things go south faster and further than expected you could see an even more aggressive stance by the RBA.

    The only thing that might change that is a decline in the exchange rate which would mean a lift in imported inflation. That would see a more cautious RBA but I don't see any upward forces at this stage. However, QE3  by the FED and another LTRO by the ECB would almost certainly see the exchange rate climb and both are looking more likely by the day. If the AU$ heads back to $1.10 again the RBA might have to cut rates to make the AU$ less attractive.

    Personally though I see more upside for you in a floating rate than fixed for at least the next 12 months.

    Profile photo of Jamie MooreJamie Moore
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    @jamie-m
    Join Date: 2010
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    Tread carefully when fixing all of your loans.

    What are your future property plans? Are you looking to accumulate more? Do you think you'll need to access equity at any point within the next few years?

    You don't want to lock yourself in with a lender now and then find out that they're not conducive to your investment needs later – because switching to another lender after fixing your loans can be a costly exercise.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
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    Profile photo of wayne_owayne_o
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    @wayne_o
    Join Date: 2004
    Post Count: 2

    Some great feedback and advise.  I have been happy to date with variable and are managing fine.  I might see how things go over the next 6 months or so.  

    Thanks

    Wayne

    Profile photo of Scott No MatesScott No Mates
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    @scott-no-mates
    Join Date: 2005
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    Got an email the other day from a broker with this interesting graph of interest rates over the past few years.

    Graph

    What I get from that is, with very few exceptions, the variable rate was well below the fixed 3 or 5 year rates. That said, if you fixed anytime in the past 3 years, you would be well behind in the amount of interest paid. At what price – peace of mind for knowing that your repayments aren't going to escalate or drop.

    Profile photo of PLCPLC
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    @plc
    Join Date: 2012
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    The thing is lenders aren't stupid, they can foresee what is happening ahead and will adjust fixed rates to suit. Even at the height of the GFC, when variable rates were low, lenders saw things were going to turn around and rates were going to increase again, so lifted their fixed rates. People were so happy with the low variable rate at that time that when the interest rate rises came, the boat had already sailed.

    PLC | Phoenix Loan Consulting
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    Profile photo of insanoinsano
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    @insano
    Join Date: 2009
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    just saw on tv that some of the big banks have sneakly lowered fixed rates over the last three weeks.
    no big announcement about it so seems to be that the banks think rates will come down.
    the reserve bank will release their statment/view on the economy today so might be an idea to watch out for that an wait a bit.
    On the other hand if you,re happy with the rate they give you and have budgeted for if, not phased if rates go lower an dont want to refinance within the locked in period then go for it

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
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    Oooooh very excellent post insanowayno.  Thanks for sharing!

    Jacqui Middleton | Middleton Buyers Advocates
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
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    Scott No Mates wrote:
    At what price – peace of mind for knowing that your repayments aren't going to escalate or drop.

    Exactly. Sometimes you need to take the "don't be greedy" approach and say "I'm happy with that, and need to know my forthcoming payment obligations.  Sure it might go down, but if it goes up it'll bury me, so lock it in Eddie!"

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
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    VIC Buyers' Agents for investors, home buyers & SMSFs.

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