HSBC 3.55% variable seems impressive?

We'll agree to disagree

For me it allows us to leverage higher than I would feel comfortable doing do with variable, eg I know what the next 3/5 years etc is going to look like.

You are right though but its a premium happy to pay and a sleep well at night, this is why my PPOR is 30 years fixed and never worried about meeting payments ever since the ink dried.

 

Quick lil' heads up... watch this space for a killer "global bank" P&I deal in the next week or two ( not HSBC) And a substantial return to non resi lending ....

 

lol I just checked out HSBC Fixed 5 year......4.59% uhm yeh no thanks....
- HSBC Fixed Rate Home Loan Rates and fees | HSBC Australia

 

Just read this. Right on point. I have all my loans in this style as I mentioned earlier in the chain:

Greedy banks that refuse to pass on RBA cuts could be forced to offer a radical new product

 

But do you know what the next 3/5 years will look like? Lets say you are locked in at 4%. And let's say we hit hit hard with a global crisis. Rates drop to pretty much zero and rental income drops say 25%. Your interest payments stay fixed. Not sure how great that is.

A variable rate of rba + a fixed margin % gives you much more certainty of adjustments that correlate with the economy.

By fixing you are essentially making a speculative bet that seems safer "because it's fixed" but is actually not, "because it's fixed".

If you are fixing for just a few years not great worries but if you are fixing say for a 20 year period you have lots of potential worries if your "bet" on interest rates does not come right.

 

If the RBA cash rate fell to 0%, you'd have far more to worry about than paying 4%

 

Australia’s ‘first’ rate tracker mortgage launches

 

I've got one fixed mortgage at 4.79% and another fixed at 4.59%.....best money I ever spent.

As for tenant income....that's the difference with Australia, even in a global crisis where are they going to go? No one is going to decide to move to 'texas' (eg Bathurst) because there is a global crisis on. eg rents may drop a little....but even then wont affect me for a while as all my tenants on 1 year leases so plenty of time to plan/prepare (keep in mind if they did a runner plenty of liquid cash available for up to 1 year of zero rent across all properties).

Stable is a great adjective for long term investing

 

How long fixed for? Mine are floating, and so currently are around 3.75%. So for now I am better off, although of course you would be better off than me if variable rates move up to a point that my rates becomes higher than you fixed rate. That's the bet you (and me) are making when we decide whether to fix or not.

Yes, tenants will not disappear, that is true, but I have been in many markets (both international and Australia) where when an economy falls, rentals do too. It will happen to Sydney (especially high/end), but more obvious examples are what happened to rentals in mining towns when resource prices fell. My point is, that if/when that happens, a lower interest rate can really help, whereas being locked in can hurt.

 

Being locked in is not only about rate - it also kills flexibility.

 

how exactly?

My wife and I have zero interest in selling any of these properties so apart from that how does having fixed rates "kill flexibility"?

 

What if you want to move lenders to access equity? Perhaps your current lender will lend no further.

 

When you go to refinance, depending on he loan terms, you will basically need to "pay out" the bank for the losses related to the fact that the loan was fixed (as they in turn have hedged). So when rates fall and you are locked in you will need to realize this loss if you decide to move. No such thing as "free money" 'in this world

 

Also what if you want to sell? I've been caught out in the past and will never fix again.

 

If you want to get equity out but can no longer service with that lender, you're stuck. This can happen due to policy changes, having bought new property in the interim etc.

 

Checked with Adelaide HSBC Branch, unless you are making more than 200k per year. won't be able to get IO. P&I is the only option for 3.55%