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is it good time i fix my rate?

Discussion in 'Property Finance' started by HomeMinister, 11th Oct, 2015.

  1. HomeMinister

    HomeMinister Well-Known Member

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    19th Jun, 2015
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    Location:
    Melbourne
    been paying painful above 5% since apra changes. negotiated with bank and they suggest fix it for 1 yr and i get .5% below what i am paying now. sounds good but is it a good time though.? they also said 0 charges to fix it!

    can any one suggest?
     
  2. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi Homeminster,

    Depending on who you are with there are a few other lenders who are offering better variable rate.
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Unless your loan is very small, under 5% is achieveable on a variable rate. Which lender are you with and what's your loan size?
     
  4. Greyghost

    Greyghost Well-Known Member

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    2 rate drops predicted for 2016, why fix?
    Also does fixing fit in with your strategy?
     
  5. Inov8ive

    Inov8ive Well-Known Member

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    I have two loans with CBA and recently asked them to sharpen their pencil as one of my loans went up to 5.12%. No questions straight down to 4.64. I Could get better elsewhere but I'm happy enough.
     
  6. Redom

    Redom Mortgage Broker Business Member

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    Adding some structure to your decision/choice - first step is to work out whether it fits in with your plan:

    1. Do you plan on releasing equity in the short term and are you sub 80%? If you are, then you have considerable flexibility in valuer shopping and using your flexibility to release equity as required.

    2. What are the chances of selling during the fixed period? This is the other main reason why people incur a break fee.

    If answers to both these questions are suitable for a fixed rate strategy (q1, no equity release planned, slim chance of selling), than its worth looking deeper into fixing for a period of time.

    You may want to look at the market as a whole to work out what fixed rate you should be paying, contrary to common belief, some fixed rates are negotiable.

    Cheers,
    Redom
     
    Propertunity likes this.
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    There's so many factors to consider in this question, it's difficult to answer.

    Firstly look at the rates. They could drop over the next 12 months, but frankly the experts are wrong about as often as they're right. Fixing now for rate considerations for 1 year might save you a little, it might not.

    If you're looking at a longer term, perhaps 3 years, there's also deals available for around 4.5% (or lower depending on your circumstances) which probably is a reasonable bet over the next 3 years. Of course, if rates drop further, you might be better waiting.

    Then there's the flexibility factor as Redom has suggested. Do you need to access equity during the fixed period? Is your serviceability good enough to do this with your existing lender? You also need to understand this to be able to make the best decision.
     
  8. HomeMinister

    HomeMinister Well-Known Member

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    19th Jun, 2015
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    Location:
    Melbourne
    my loans is close to 420k and i paid lmi not long ago maybe 8 months. equity access is a distant dream for now with nominal growth throughout the P spectrum. cant switch lender for this reason. paying 5.24 and offered 4.74 for 1 or 2 yrs , for 3 yrs its only 4.69 which is peanuts discount. better bang gives me 1 yr lock to lower my risk if need be to jump out of this vesting. what you recon if i go for 1 yr i save 2k in interest, if i dont i hav to wait for rate cut and with apra around banks dont cut for vesting loans is what i believed. still cant decide....:(
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Melbourne, Nationwide
    The challenge in this scenario is that you could fix for a year at 4.74%, but in that time, rates could go go down (missing out on the opportunity for a cheaper fixed rate) and then go up again, leaving you on a higher rate after 12 months.

    A 3 year fixed rate might have you paying a whole lot less on average over the 3 years if rates start going up, a much better result overall.

    Either scenario is a guess, but I hope that the economy starts to improve in the next year or two, which would see higher rates than today, so a longer term fixed rate might be more cost effective. That does come at the cost of reduced flexibility to move lender if you have to.

    Moving lenders within a year or two of setting up a loan suggests that the wrong lender was not compatible with your longer term goals and a mistake, but given that the APRA changes have turned everything upside down recently so it's not something anyone had control over.

    This probably doesn't make the decision any easier. Personally I've fixed some lending but the majority is still variable. In my case it's because I expect to be doing something with most of those loans in the next 1-3 years. Those that are fixed are for 3 or more years, I don't see much benefit in fixing for a very short period of time, but at 5.24% I also suspect your variable rate is higher than it should be.