I have just bought my first investment property. Was wondering weather i should fix for 5yrs at higher rate (5.3%) or go 2 yrs at 1%lower or should i just float. Any inputs appreciated
5 years is quite a long time to fix – which can leave you in a spot of trouble if your circumstances change over those 5 years.
Generally I wouldn’t advise a client to fix any longer than 3 years as it’s difficult to forecast your situation much further than that.
5.3% is an absolute extortionate rate too – many lenders are offering mid 4’s for the same period.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
There probably isn’t much upward risk (well not more than 2% up) in the next 2-3 years so you are probably ok not going the 5 year fixed.
This being said I always prefer to fix for 3-5 years as it helps me sleep at night :)
Our last IP in Sydney was fixed for 5 years at 4.59% until July 2020.
I only wish I could get 30 year mortgages in Australia like I can in the USA. Our PPOR here in NYC is fixed at 4% for 30 years (26 years left of P+I).
We are paying about 1.2% over variable for the peace of mind of locking in rates for 30 years which makes it a no brainer.
Corey is right about you paying too much though……you should hire him to get a better rate.
What are your longer term plans with this property?
Will you want to extract equity?
If you need to maintain flexibility then I wouldn’t be locking in for a 5 year period.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
I’ve always liked to fix so I can sleep easy at night aswell… How ever as I am starting to learn more about investing and the benefits of offset accounts and minimising interest etc I have recently found that my 3 year fixed rate has actually been of negative affect to me.
The reason for this is that I am unable to attach an offset account to my homeloan until the fixed interest period is less than 12 months…I’m no expert at all but all id say is make sure you know what you can and can’t do with whatever package you choose. I would have personally been better off floating the interest period and attaching an offset account and reaping the benefits of reducing interest paid and in turn the compounding interest saved for the life of the loan
@barlow in our situation we aren’t worried about an offset as we always have at least one variable loan that we pay down each month.
If you only have one IP then how about getting a split loan with variable/fixed where the variable portion is equal to the amount you think you will be able to pay off in the next 3/5 years + an extra 10% for if you get serious about paying down the variable portion.
This way the bulk of your loan is fixed and you can still have an offset or pay down the variable portion with all the spare cash you have at the end of each pay cycle.
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