Opinions on fixed loans

Hiya

It depends.

If it’s a set and forget IP that you don’t plan on doing too much with (selling, releasing equity, etc) and you take comfort in knowing what your repayments will be then fixing can be a good option.

Note – you can still release equity against a property with a fixed loan but if for some reason the lender doesn’t allow it then you’ll have to refi to another which can be costly due to high break fees.

Cheers

Jamie

Think of it as a risk mitigation tool.

One of the biggest risks to cash flow for investors is interest rate risk. Fixing rates over different periods can manage this risk.

In terms of pricing, fixed rate market is very competitive at the moment. Years of cheap money around the world are flowing through to lower funding costs. Often people confuse the ‘fixed rate’ price as some sort of educated guess by the banks as to where rates will be in a few years time – its not.

It reflects the funding costs in longer term funding, which are largely driven by international credit markets. The worlds massive players have all gone through very large monetary easing that has pushed down credit prices (US QE, Europe and Japan monetary easing). How long that continues is debateable and very difficult to predict (1 year, 2 years, 5 years).

Cheers,
Redom

I wouldn’t say it’s necessarily GOOD or BAD. It comes down to the risk profile.

If a fixed rate was 0.01% more expensive than the variable offering, but gave a single income family with a tight budget piece of mind, is that not a GOOD result?

Horses for courses – don’t try gamble to beat rates by choosing fixed rates, choose them when you want a reliable repayment amount for the forward period.

I’m currently deciding on whether to fix or not. My school of thought is it would be wise to fix (in my case) as rates are at a historical low (reserve bank just knocked another 0.25 off). Some people say further cuts are in the pipeline but chances are they will creep back up to historical average in a few years to come. I might fix in for 5 years, that way I have a bit more control with finances/cash flow and can be more confident when increasing my IP portfolio.