Fixed or variable investment loans

I wonder if the IP variable loan interest rate will keep going up to restrict investor loans. If so, is it better to fix all the loans now?

 

Good question. I can fix one of my loans that I don't want to get rid of in the next 5 years for 4.49% p.a for 5 years. I am considering this.

 

I'd consider it if it's a set and forget property and no subdivision/cash out/anything else coming up or anything. I don't think you'll see that rate again any time soon.

 

Very dependent on the specific requirements of the individual borrower - how long they're likely to hold the property, the lender they're currently with and if they have options to move existing borrowings.

Overall trend however is that if there's an assumption of upward pressure on variable investment interest rates - that investors are moving over to fix their interest rates and in a lot of cases, fixing with principal and interest repayments to reduce the rate substantially which subsidises a significant amount of the cash flow hit.

As an example:

Existing loan - $400,000 @ 4.75% Interest Only = $1,583.33 (interest) per month

2 year P&I Fixed Rate - $400,000 @ 3.88% principal and interest = $1,882 per month ($1,293.33 interest and $588.67 principal)

So effectively the P&I switch interest saving covers half of the principal cost, growing the equity position and locking in the rate to provide consistency against the upward rates pressure.

 

Agree with the guys above.

It's client/situation specific so impossible to answer your question without knowing the finer details.

At a very general level - I'd take the same approach Jess mentioned. If it's set and forget - then fixing might not be a bad option. The P&I rate for fixed investment loans is pretty good at the moment.

Cheers

Jamie