Fixed vs Variable - banks are offering lower fixed..why?

Banks are currently offering fixed rates slightly lower than variable on investment loans.

Does this mean the banks forsee rates dropping in the next 2-3 years?

I feel like its never good to fix and the banks always win this game, but its hard to not fix when the offering rate is lower.

For example on the table I have:

P&I variable 4.91%
or
IO fixed 3 years 4.49%

Which is best? For an IP, I feel like IO fixed is better.. because currently variable IP loans just keep sneaking up even without a RBA rate hike.

 

Personally I think it is a way to attract new and retain existing customers in the hope that they will stay after the fixed rate expires at which point loan reverts to a higher SVR.

I think rates will stay flat for a couple of years and then may rise.

I tend to agree with your philosophy but at times, such as now, it is a good idea to fix imo assuming it fits your short, medium and longer term goals.

Depends on your cash flow position. If you want predictable repayments for budgeting purposes over a set term then fixed rates can offer a measure of predictability. There are some sharp p&i fixed rates on offer as well atm that may be worth considering.

 

If that's for an investment loan, that P&I is WAY to high and is most likely the standard variable with no discount. Their actual P&I rate is likely much lower.

There's more to consider here than just rate - future plans, borrowing capacity, family circumstances...fixing a low rate is great, but changing to P&I can have unintended consequences for some people so I would be inclined to have your portfolio looked at before changing too much. It's not a given that you'll be able to change back to IO so make the decision in light of your big picture, rather than short term price movements.

 

Thats interesting, I always thought fixed rates were an indication of where the banks think the rates are headed. I guess there are a lot more reasons behind bank rates.

I have nil concerns on the affordability of P&I repayment and have a buffer to afford repayments if rates go up. So I don't need the safety net of a fixed rate.

I just don't want to be greedy now and fix at the lower rate, and then rates go lower and I feel remorse for fixing.

Looking further down the track with the next purchase which is probably PPOR, it probably best to consider IO over P&I and save additional funds in offset for my PPOR.

 

When fixing a loan focus on what the fixed commitment/repayment is, not the rate.
Once fixed you can't change it, no point being upset.
Make sure you consider flexibility, extra repayments, offset, sale/discharge, costs.

If looking to buy PPOR shortly likely best to save funds in offset, which might not be available fixed.

Personally if you're going to be buying soon I wouldn't be fixing in until after the purchase/contract signed so you know where you stand.
Might find your dream property, which you can only buy if you sell your existing property.
Or some financing issues/constraints which see you needing to switch banks.

 

Thanks Brady, purchase contract is signed. Currently working on finance. The odd thing is, the fixed rate is IO option with 100% offset account. The P&I option is variable, also with 100% offset.

I intend to keep this IP and one other for the long term and selling an overseas property in 2018 will give me a nice cash injection for my next purchase which will most likely be my PPOR. This will probably be about 3 years away while the banks recover from loaning me for my two IP's.

 

It's important to remember the house always wins.

In saying that, if when you fix your repayment is attractive and/or affordable then IF rates do drop, big deal, you still locked in a great rate and achieved that comfortable sleep at night factor.

Rate certainly isn't the biggest deciding factor here. Speak to your broker and other advisers and make an informed choice.