Need to lock in PI Fixed or Variable rate asap

Hi all,

I'm purchasing my 1st IP this week and I've dwindled down my best options to St George Variable rate at 3.54% or Variable-Fixed for 2/3 years at 3.25%. The strategy is to use extra cash flow to offset my PPOR offset account and also save up deposit to buy another IP next year.

The dilemma is I'm being pressured by my broker to lock in a variable rate as he advises much talk of rates going down before EOY and next year. My contrary thinking is:

Rates are historic lows, economy has slowed so much I believe we have bottomed out already or just about to bottom out. US trade wars do seem to be turning a page, I'm certain Trump will try wrap as least the USMCA trade deal before Christmas to get some much needed positive press for the holidays (or as much as the left wing media will give him *cough*). China trade war part 1 seems to be locked in so plenty positive signs moving forward.

I feel next year world economies are going to turn especially Australia (housing market turn already indicate of this). Therefore: at 3.54% even if there is a cut before Christmas I'm roughly looking at 3.4%. Another cut 1st half of 2020 roughly at 3.3%. However, I have recently read and heard that the RBA will be reducing its basis point cuts to .10 rather then the standard .25. That means there could be more cuts, but smaller ones at that.

Question is 3.25% seems much more attractive to lock in for 2 years now, so I can save a little more throughout the next year. Do you guy's think I'm on the right track, or should I take my brokers advice, not overthink things and just just lock in 3.54% Variable?

Thanks in advance for any advice

 

How much do you expect rates to rise in the next couple of years? Do you think its more likely for rates to rise or to stay the same / fall?

 

based on this, a recession would never occur?

 

Definitely fall through first half of 2020 then stable out by end of 2020 and rise again in 2021. I think we will be exactly the same spot we are in now rates wise in 2years time.

 

unless you expect much higher rates in 2-3 years, rising soon, whats the benefit here?

 

The banks, in setting their fixed rates, have made all the same calculations that you have regarding which way the economy is heading, and they have expert economists to do it. The fixed rate is set at a level that will be at least as profitable to them as the variable rate. The only good reason to go with a fixed rate is if you cannot afford to risk a rate rise in the first few years because the repayment will be a stretch.

 

Yep which is why if you are going to lock in a fixed mortgage now.....it needs to be for 5 years NOT 2 or 3 years eg as the next 12 months to 18 months is going to be flat if not down.