January 2019 - Fixed or Variable for IP Loans?

Discussion in 'Investment Strategy' started by Lenny, 13th Jan, 2019.

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Fixed loan or variable?

Poll closed 12th Feb, 2019.
  1. Fixed

    2 vote(s)
    10.5%
  2. Variable

    6 vote(s)
    31.6%
  3. Combo (some Fixed & some Variable)

    11 vote(s)
    57.9%
  1. Lenny

    Lenny Well-Known Member

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    Brisbane
    We have a few IP loans and also a PPOR loan. All variable.

    We’re thinking of fixing the IP loans but leaving the PPOR as is.

    Just thought I’d throw out to PC members, for IP loans which option to you think is best “right now”?
     
  2. Terry_w

    Terry_w Broker, Lawyer, Tax advisor, Debt Recycle advisor Business Member

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    Australia wide
    Your poll is a bit low on options Lenny!

    What about a combination?
    PPOR loan variable investment fixed
    or PPOR half fixed and half variable etc/?

    I think a person generally needs at least one variable so that they can have an offset account to park their cash.
     
    Lenny likes this.
  3. Lenny

    Lenny Well-Known Member

    Joined:
    20th Jun, 2015
    Posts:
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    Location:
    Brisbane
    Hi Terry. Thanks for the suggestion. I added a third option for combinations of both. I think we will retain the PPOR on variable to retain our offset but we may consider changing it to P&I.

    At this stage I’m more focused on IP loans. I know it’s a general question but I’m just after a thumb in air from others in similar positions.
     
  4. David Shih

    David Shih Mortgage Broker Business Member

    Joined:
    21st Jun, 2015
    Posts:
    956
    Location:
    Sydney
    In general I think a combo/split loan is probably not a bad idea in current environment for those that are rate conscious. I'm definitely seeing more and more people taking advantage of this.

    Though before fixing there are couple factors to consider such as:
    1. Are there any plan to sell property in the next couple of years? If so there might be break cost involved if you fix
    2. Most lenders don't allow offsets to be linked to a fixed loan, so if you have a fair amount of cash on hand and want to maximize offset facility then keeping combo/split may be worth considering over fixing the whole amount. I've discussed a bit more about how much to fix in one of my earlier videos:
    3. If you're planning to pay down as much debt as possible (i.e. make additional repayment into the loan) then fixing may not be suitable for you as you may be penalised for making additional repayment or pay out the loan early

    Bottom line - more thoughts need to be put into future plans/circumstances than just simply considering rate :)

    As for me, I've fixed most of my IP loans back in 17 except for my PPOR debt which I'm focusing on paying down.

    Cheers,
    David
     
    Lenny likes this.
  5. Rex

    Rex Well-Known Member

    Joined:
    12th Feb, 2018
    Posts:
    499
    Location:
    Perth
    This prompted me to have a look at what fixed rates are currently on offer with my lender. Bankwest currently only apply a 10 basis point (0.1%) premium to fixed interest rates for investment purposes compared to the OO rate. Whereas it's a 50 basis point gap for variable rates.
    How odd. Big incentive to switch at least some of the loan to a fixed rate.