Another Variable Vs Fixed what would you do question

Discussion in 'Property Finance' started by Otie, 14th Oct, 2018.

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What term would you fix IPs for if you have 5 years IO remaining?

  1. 3 Year at 4.09

    13 vote(s)
    81.3%
  2. 4 Year at 4.39

    0 vote(s)
    0.0%
  3. 5 Year at 4.49

    3 vote(s)
    18.8%
  1. Otie

    Otie Well-Known Member

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    I have made a decision to fix all of my IP loans as I feel that it would give me peace of mind knowing that we will not be impacted by rate rises, and I feel that the fixed rates are really good at the moment.
    Im stuck deciding on the term.
    My IP's will all click over to P+I in 5 years from now. I hope to pay down my PPOR as much as possible in the next 5 years so that I can easily afford the P+I without any stress.
    I can do the following;

    3 Years @ 4.09
    4 Years @ 4.39
    5 years @4.49% (will cost me $488 per month more than 3 year fixed)

    I'm torn because the 5 years will cost me $488 per month more than the 3 year fixed rate, however my concern is that if the bank decides to put interest rates up a few times, its likely to take only 1 or 2 interest rate rises for my rate to increase past the fixed rate, however $5800 a year seems like I may not be worse off than taking the gamble and hoping that nothing much happens with the economy in the 2 years after the 3 year fixed rate ends- though I do think the banks will want to continue increasing profits since they aren't giving money out as easily so I do think they will do this in the way of rate rises outside RBA decisions.
    I'm confusing myself the more that I think about it.
     
  2. SoroSoro

    SoroSoro Well-Known Member

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    I just locked in 2 year @ 3.79. I like your 3 year option the best - who know where we'll be in 2-3 years? You can always rewrite the loan at the end of 3 years to something else that fits better.
     
  3. mikey7

    mikey7 Well-Known Member

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    If you took the 3 year option, which I voted for:
    You'd be $17,568 better off after that 3 year period, compared to locking in for 5 years.
    (Assuming you have $1.464m debt)

    If the banks rate was then 1.0% higher at that 3 year point (5.09%), you'd break even with the 5 year lock, after a further 2 years.

    So, do you think your rate will be above 5.09% at or before the 3 year mark? If so, go the 5 year option, else go 3 year.
    I haven't done the math on the 4 year, but can you if want.

    We recently locked in a 3 year with similar options to you.
     
  4. thatbum

    thatbum Well-Known Member

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    I don't get where exactly the "stress" is coming from? The idea that rates might go up?

    So what happens to your stress levels if you fix and then rates don't end up rising? Or if during the fixed period something changes and you need to refinance and sell?
     
  5. Otie

    Otie Well-Known Member

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    Its the peace of mind knowing what I will be paying, without any surprises. I can handle fixing as I will have sleep at night peace of mind.
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    on that basis, obviously the longer the fixed the better............. ?

    BTW 3 year on 4.19 IO is available to many, which many be a better choice when someone has PPOR debt still

    ta
    rolf
     
  7. Otie

    Otie Well-Known Member

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    Initially I thought that until I calculated the cost of this that I could save in the first 3 years.
     
  8. Otie

    Otie Well-Known Member

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    All of those rates I listed are IO
     
  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    4.49 IO for 5 years every day of the week making sure that we leave enough variable to offset in those 5 years.

    Assumes u will hold for 5 years and dont wanna pull equity or refi or sell

    ta

    rolf
     
  10. Otie

    Otie Well-Known Member

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    No plans to sell in the 5 years. Only plan to possibly sell one in 10-15 years if we get to see another boom but otherwise holding for long term. To be honest I don’t think we would be able to refinance in 5 years as we only just scraped through this time. How do I figure out how much variable to keep in the offset?
     
  11. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Have you modelled changing to P&I now - ie 5yrs early and how big the repayments will be vs P&I repayments in 5yrs time?
     
  12. Otie

    Otie Well-Known Member

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    I can handle the P+I cliff quite easily as we have just refinanced from 6.8% IRs with a third tier to a first tier. My goal is to pay down the PPOR aggressively over the next 5 years so that no matter what happens with rates we are in a good position to handle whatever the situation is at the time.
     
  13. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    clear focus for decent IO rate if the spread isnt too large

    ta

    rolf
     
  14. Otie

    Otie Well-Known Member

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    Will definitely be going IO as I feel that the rates are really good at the moment
     
  15. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    Fair enough - I didn't know this when I asked the question and goes to motive and strategy.
    I'd probably go 5 years then. But if you have multiple IPs then you could do some with 3 and some with 5 to hedge your bets.
     
  16. Otie

    Otie Well-Known Member

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    I'm leaning towards the 5 years as the variable rate for is already a lot higher than the fixed, and I can't see rates getting any lower, but I think if I do the 3 years that at the end of the 3 year term rates will be a lot higher than now. When I bought my first house around 2008, variable rates were around 6%, and to fix was up around 8% form memory. I just don't think that in 3 years that I will be able to remix for such a good rate.
     
  17. Ian87

    Ian87 Well-Known Member

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    4.49 for 5 years is a great rate. Who is this with?
     
  18. Otie

    Otie Well-Known Member

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    Actually I could be wrong! I was sure I saw that at IO but after re-reading I can't see where it says IO. Let me check and report back
     
  19. Otie

    Otie Well-Known Member

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    Sorry Guys! Ive been reading the wrong rates. Not 4.49 for IO!!!
    That was investment rates in P+I
     
  20. Otie

    Otie Well-Known Member

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    It is 4.99% IO investment rate 5 year fixed. Was reading wrong section.
    3 year IO is 4.19
     
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