Interest rates - What do I do?

Hi all,

What are the thoughts on interest rates?

With the recent rate rise by some of the banks are we watching a slow turn in the tide of interest rates or is the RBA having none of it and will they counter the banks move by leaving rates for a while?

I have never fixed before but it's kind of appealing when they are so low.

Any feedback would be great

Cheers

GLAM

 

I am not a seasoned investor by any means but am currently looking to fix rates for all our mortgages. Why? At this rate, we are comfortable with our investments- they are either cash flow neutral or slightly negative (but not horrendously negative) and for our PPOR we can comfortably make the repayments. We can still comfortably make repayments if they move up also (but obviously less so). But all indications seem to show interest rates going up (especially for investors) so I'd rather not take the chance and lock them in now!

 

If you're worried, I'd suggest fixing 80% and leaving 20% variable.
Even if the RBA cuts more, banks are raising rates due to cost of funds increase (Trump effect), APRA, and Basel IV.
Notwithstanding that, I leave mine all variable, as supposedly it comes out cheaper in the long term and I'm comfortable with IRs to return to trend of 7% eventually.

 

If you do fix, do it for just 2 or 3 years so you're not stuck should you need to sell or similar.

Also bear in mind that there can be high fees to break a fixed rate.

 

Most of the banks have already increased fixed rates, there are a couple of holdouts, but don't rely on fixed rates being lower than variable rates by mid-December.

If you are seriously considering fixing consider using a rate lock to guarantee yourself a specific rate for 90 days.

 

hmm after todays new, might be best to wait on holding interest rates. Seems like an each way bet at the moment.

 

About 6 months ago we were in a similar situation where the fixed rates were rising and investor IO loans were also being targeted. A few of my clients locked in then as it looked like the bottom - it wasn't.

This feels similar - it may be the bottom but we wont know until it's been and gone.

 

Thanks guys

I think I might leave it for now and reconsider in February

GLAM

 

I don't get why people think its a good idea to try and second guess interest rate rises by fixing their rates. It feels too much like dabbling in macroeconomics to me.

Personally I leave that to the experts and focus on making money in property - rather than gambling with fixing to save a few bucks and losing the flexibility of variable rate loans.

 

Rate cut predicted as GDP worse than gloomiest forecast

 

I have recently investigated fixing some of my loans for a fixed period of 3 years. Saves me abit of money and only fixing on homes that I know are not going to have a massive capital increase during that time for me to make it worthwhile to keep it variable. For the ones that I know still have room to grow and for me to have the equity release on them, I have kept it variable because I would like to still make purchases in the next 3 years rather than sitting on the sidelines. I am at the stage where I need to save and cut costs on some aspects of my life to increase my buffer and to add to the next purchase.

 

Realistically, what are the chances of an out-of-band RBA rate cut after the GDP wind back?

 

@jins13 you can still access equity if your loan is fixed - you just do a separate split

 

I never accessed equity when a loan was on a fixed loan, so didn't know that. But the issue is that even if there are equity in the property, it takes away the flexibility of moving to another bank that are generous with taking rentals at actual and etc. I don't want to be in that position where I may have the equity in an IP to make another purchase but can't because I am on a fixed. But happy to be shown other strategies or ideas of course.

 

I will tell you why.

Because a lot of people do not have the income of a solicitor ! That is why.

It is easier to budget on a known amount, I will be fixing some, but have spent the last 12 months continually lowering the variable.

Even as a solicitor, if you can save 1% or so in rates, it would be worthwhile if you have enough money out.

I think you are also not betting on much, look at what multiple lenders are offering, if you ask me, you can see what they are all thinking by the rate and term.

I also would think the govt is going to let banks raise, even if they are cutting, no more faking outrage, more for the OPs benefit, I do not think the banks care about the RB, they only care about what they can get away with, without triggering a royal commission or other disruptive interference to business.

 

Depends. If fixing a couple of loans at a low rate will help serviceability, I can see it but I would not fix all my debt.

With ING I can fix one loan for 3.89% for 3 years and one for 3.99% for 3 years. Seems like a good deal? I would only do that if I had a variable loan as well though.

 

Interest rates are still very close to historical lows.... the chances of going much lower are remote. Even if they did go down a whole percentage point they could just as easily rise 4 to 5 % if the last 40+ years has any relevance.

Fixing rates is essentially a SANF decision but the exit/break costs or potential change in circumstances should be carefully considered.

 

I think it also depends on the size of your loan portfolio.

For example:

1, If my loan portfolio was $500K, each 1% rise in rates equals to $100 per week in extra interest cost. I probably wouldn't fix.

2, If my loan portfolio was $5M, each 1% rise in rates equals to $1,000 per week in extra interest costs. I probably would fix some/all of my portfolio.

FYI:- my portfolio is between 1 and 2 above.

 

I decided to fix my PPOR at 3.69% for 2 years. I can offset against 40% of the balance. The interest costs are not deductible so good to keep rates as low as possible. If the 40% offset facility was not available, I would not have fixed.

My first IP is on fixed rates and has 18 months to run.

My second IP is on variable rates and I will leave it variable in the event I need to refinance it for development.

 

Another factor. If your variable rate is higher than your fixed rate, why not fix? Of course these are the loans attached to properties you are not going to sell, pay down, etc. etc.