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Questions on fixed rate loans

Discussion in 'Property Finance' started by Peter P, 5th Jan, 2017.

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  1. Peter P

    Peter P Well-Known Member

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    Hi,

    I'm assessing whether it's worthwhile fixing my loans for 2 years with NAB and wanted to understand any future consequences.

    Some have mentioned that in the long-term, variable rates are always lower than fixed rate loans.

    1) John has a 600K loan on variable interest I/O. He is currently receiving a discount of x% discount off this variable rate. He fixes the rate of 50% of the loan (Loan A) and leaves the other 50% on the current variable rate (Loan B). When Loan A's fixed term ends, the rate would revert back to a variable rate. Would this variable rate be the same rate as Loan B (with the x% discount)?

    Here are some responses:
    Lender 1: No, you would have to renegotiate a new variable rate on Loan A
    Lender 2: Yes. Show the bank you have proof of the x% discount on Loan B and you should be able to receive the same discount on Loan A when it comes off the fixed term.

    Which lender should I be listening to?

    2) Does anyone have a method of calculating/deciding how much loan portion you should fix? Some people choose 50/50 but I'm not entirely sure why.

    Here's an idea: Say John has 100k in cash savings and he knows he can save 30k a year. Therefore, for a 2yr fixed rate term, he should keep 160K of loan on variable and the rest fixed.

    Any other ways to do this?

    3) I understand that if I leave my loans at I/O variable rates, I can keep the I/O period up to 15 years (without refinance). Does fixing the loan have an impact on my I/O period?
     
  2. euro73

    euro73 Well-Known Member Business Member

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    Generally the discount should apply to the entire loan amount, and when a fixed term expires you should see consistency applied to the variable rate you pay for A and B. However, in 2 years, you'll be subject to the policy of the day...whatever they may be. They may do exactly what they have promised, or they may make you jump through hoops... Part of building a portfolio is being pragmatic about having to deal with lender policy changes and inconsistency every now and then... and being willing to refinance if required.

    Generally just to hedge, or if they want somewhere to park surplus funds, and have already maxed out their PPOR offset or dont have any PPOR debt to offset. I personally believe 3 and 4 year fixed rates are compelling ( at NAB in particular) for investors at the moment ... especially those who still have PPOR debt , and even more especially because lenders have commenced hiking variable rates recently and I think there are probably more to come in 2017, with BASEL IV implementation. If you dont intend to sell, and dont need somewhere to park surplus funds , I think there's plenty of merit in fixing the lot at sub 4%.

    Not at all... assessment rates are assessment rates, no matter what rate you are paying, and no matter the type of loan ( variable of fixed) . I would recommend you double check the 15 year I/O thing.... NAB offers 10 years I/O under some product lines ( tailored loan and choice package) and 5 years I/O under others (homeplus). You can certainly apply to extend the I/O period once the 5 or 10 years expires, but that will be at the discretion of the lender at that time...
     
    Peter P likes this.
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Q1: Both lenders are saying the same thing, that you need to renegotiate the rate discount again.

    Q2: We tend to do a budget as your example does. How much cash you've got, how much you can save during the fixed loan, plus a bit of a stretch. Leave at least that much variable.

    Q3: NAB can be quirky on this one, they may continue to roll over to new fixed loans until the end of the IO period unless you do something about it. Outside of this, no consequence that I can think of.


    I don't see much point in the 2 year fixed rate at NAB. I'm thinking the 4 year fixed is the best value at the moment, but the 3 year rate's pretty good too.
     
    Last edited: 6th Jan, 2017
    Peter P likes this.
  4. Stoffo

    Stoffo Well-Known Member

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    Another question.....

    Am trying to fix my current rates, "but" my financial institution" is telling me that with my new apartment settling in July I would have to break my fixed term to settle at huge cost :mad:


    Breakdown (I know you all like specifics :D )
    All properties are in NSW. Small lower tier lending bank.

    loan 1, PPOR small amount owing, and is security for loans 2&3
    Loan 2, CIP, 80% LVR, and I hold the title (bank says I don't need this as security)
    Loan 3, IP2, $40k being the 5% deposit on the place yet to settle.

    So by my simple thinking, I should be able to lock in Loan 1 & 2 to the current fixed rate.
    This leaves Loan 3, balance approved waiting for settlement (then fix after settlement).

    Why would I have to "break" the fixed loans on 1 or 2, to settle 3 ???
    @Peter_Tersteeg @Jess Peletier
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    @Stoffo we'd need to know a lot more specifics to be confident of the answer.

    Are you using the PPOR as additional security for IP 2? Are the two properties with different lenders?

    The only real restriction of fixed rates is if you need to change lenders you will need to break the fixed rate. If the lender for loan 3 wants to take the PPOR for security against IP 2 and IP 2 is with a different lender, you'd need to break the fixed rate.

    Regardless of the loans being fixed or variable, that would be cross collaterlising, which is a terrible structure.
     
  6. Stoffo

    Stoffo Well-Known Member

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    Sorry Peter

    All the loans are with the one lender.

    Have used the equity in my PPOR as security and broken it off into all separate loans.

    So PPOR,(loan 1) very little owing, $1.2 in equity
    CIP (loan 2) was secured by using some of the equity in my PPOR, but is now pretty much a stand alone venture, in that it is CF neutral and has less than 80% LVR

    The IP2, (loan 3) that is yet to settle, I set up a loan for that deposit separate from the other 2 loans, the finance is approved, just waiting for settlement now......
     
    Last edited: 27th Apr, 2017
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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  9. Terry_w

    Terry_w Well-Known Member Business Member

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    Your lending is stitching you up stoffo.
     
  10. dabbler

    dabbler Well-Known Member

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    From reading that, they are crossed.

    If you have enough money for deposit and costs, then it would not matter to any lender about the 80 on the new place, just use another lender, or see a broker.

    PS I would split the lenders up anyway.
     
  11. Stoffo

    Stoffo Well-Known Member

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    Tell me about it :oops:

    Have been with this bank since it was a credit union.
    It has had its ups and downs, but I do have a good relationship with the national manager.
    The loans dep't rejected the CIP loan, but he overruled them :cool:
    @dabbler ,Being self employed and drawing little in actual wages, I will find it difficult with another lender, (had to take some director payments to get this new IP)
    I have previously requested the loans not be crossed as such. Each is split into different acc's.
    Current accountant doesn't have any issue apportioning costs/interest for each.

    #INVESTMENTgrowingpains o_O
     
  12. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    You don't need to change lenders just give them a ring to ask to see the application data - you'll soon see if you'll be crossed as there will be 2 securities listed.

    Just sort it now while you can.
     
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  13. dabbler

    dabbler Well-Known Member

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    If you have gone through it, fair enough, I would not trust bank staff though, while there may be some good ones or ones you have a relationship with, that can't match a half decent broker who has many options they can present usually.

    In life, stuff happens, being crossed is not as bad as having everything in one basket with one lender IMO (which may as well be crossed), but I will spare you the lesson as I am sure you have read or aware of the why's etc.

    Sounds suspiciously like a CU that now has a very odd name.....
     
  14. Stoffo

    Stoffo Well-Known Member

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    So, how long "should" it take to fix a loan ?
    Does the current P&I variable loan have to be recontracted ?

    The bank are still answering with Rate Lock fee's of $600 & 0.15% of the loan balance to lock.........

    ( I dont see rate lock being worth it particularly if the RBA dont raise rates tomorrow)
     
  15. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    That ^^^^^ looks like the loans are cross collaterlised and if you went direct to bank then most certainly will be a this structure suits the bank and not you. Another reason (besides massive break costs due to a transactional approach instead of strategic) not to go bank direct unless you know exactly what you are doing and have a very specific scenario as well as bank contacts who can get it dome for you.

    I would try and spread the risk by not having all your properties with one bank and definitely stand alone (not cross col) if you do have more than one property with the same bank. Get some professional help by some one who doesnt work in a bank ;)
     
  16. Stoffo

    Stoffo Well-Known Member

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    Thanks @Colin Rice
    Am borrowing 110%
    (70% being secured by new purchase, 30% split from PPOR).

    Already contacted on broker here, am seen as having poor servicability/history (due to being self employed and only drawing what i require in wages).
     
  17. Tom Simpson

    Tom Simpson Well-Known Member

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    It should be pretty swift to fix your loan. Call them. Either they should be able to process it on the phone and email it to you pronto or they'll say you have to go into a branch.

    Either way it's swift a swift process with 1-2 business day turn around at the back end for most banks.

    Take out rate lock if you're worried they'll bump up rates in that period, but only if the amount you'll save by locking is greater than the cost to lock.

    The poor serviceability may or may not impact on your ability to switch. It depends on bank policy whether they will assess this an application which some do, they may require income, expenses, A&L or they may simply do it.

    I take it by poor serviceability/history that you've missed a few payments? Again this may or may not impact your ability to fix, it depends on policy.
     
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  18. Stoffo

    Stoffo Well-Known Member

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    Thanks @Tom Simpson
    Just as i thought, bank are rorting me.
    Have been trying to fix for 4 weeks, all i get is stalling and rate fix :mad:
    Never missed a payment, in fact an 14 years in advanceo_O
    History, as in tax returns showing low income :cool: