Split Fixed/Variable Loan - 3.49% - FHB

Discussion in 'Introductions' started by ChristianJack86, 13th Jun, 2019.

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  1. ChristianJack86

    ChristianJack86 Member

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    Morning All,

    A close friend put me onto the PC forum and it has been an invaluable resource for me this week. Looking for feedback if there are any glaring issues with the planning around my first home loan.

    Apartment purchase in Sydney, 600k loan, Suncorp Bank. 3.49% split with 400k variable and 200k fixed (2 years). First home buyer (along with my partner). Plan to get stuck into the variable portion considering the current climate.

    Any feedback on whether this is a prudent option (specifically the 400/200 split)?

    Appreciate any feedback !
     
  2. Propertunity

    Propertunity Well-Known Member

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    Why do you want to fix part of the loan?
    Depending on your answer, why then do you want to fix only 1/3 of the loan amount? Why not 2/3 or even 90% for example?
    What do you mean by this? :confused:
     
  3. ChristianJack86

    ChristianJack86 Member

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    Thanks for the response Alan.

    The split idea was so we could hedge our bets essentially, hoping to capitalise on lower interest rates (with the hope that they will go lower again - and sorry, that is what i meant by current climate).

    While we can service the loan easily enough, the fixed aspect is there as a bit of a safety net i guess. i figured a 400/200 split was a good reflection of how far we were willing to push our luck on the variable rate.

    (For full disclosure, I should add this loan is being facilitated by a broker).
     
  4. Propertunity

    Propertunity Well-Known Member

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    You are getting an IR with a "3" in front of it. I don't think you need to worry about "safety" too much and if you cannot afford something with a "5" in front, you probably should not be borrowing this much or at all. If banks are offering that to you for say 2-3 years, then they are "betting" rates will fall below that. I read somewhere, that overall, statistically, going variable works out cheaper over the longer term. However, if you don't plan or need to sell during the fixed period, and you need some SANF, then fix to your heart's content, but leave a part variable so you can pay more down, if you so choose, (although I'd use an offset account).
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If its an owner occ loan, perhaps consider a lender that may do a debt recycling strategy to pay the home off more quickly.

    Lender selection is more important than rate or splits in many scenarios depending on what a borrower actually needs, vs perceoved need

    especially critical if one pays LMI, or is fixing in for a few years

    ta
    rolf
     
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  6. Lacrim

    Lacrim Well-Known Member

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    Personally I would go 100% variable and hit it hard (pay it down) given the low rates.
     
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  7. Trainee

    Trainee Well-Known Member

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    Usual newbie problem. Not knowing the right questions to ask. Rates and splits are not the main things.

    Are you going to pay this off asap? How long? What happens when you want to upgrade? Possibility of keeping it and renting out? May need more loans in the future?
     
  8. ChristianJack86

    ChristianJack86 Member

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    Yes, plan is to pay off asap (timeframe is not set in stone). The purchase is an apartment. Our intention is to upgrade (in 7 years roughly) but not sure if we will keep the property.
     
  9. Trainee

    Trainee Well-Known Member

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    Offset account?
     
  10. ChristianJack86

    ChristianJack86 Member

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    No offset account, only redraw.
     
  11. Trainee

    Trainee Well-Known Member

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    Do you understand what it means if, say you pay 150k off the loan in 7 years, then buy another ppor and rent this one out?
     
  12. ChristianJack86

    ChristianJack86 Member

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    No.
     
  13. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    This is a really good point. People often pick the split based on some arbitrary figure that sounds good. Some sort of percentage. There's usually not that much real thought behind it.

    Instead I suggest people do a budget. Figure out what you can actually pay off over the fixed period. Factor in pay increases, windfalls and somewhat predictable life events. Then stretch that figure a bit.

    Use this as your variable component and aim to pay it off during the fixed period, or fully offset it. This gives you an achievable goal to aim for. Fix the rest so you know what you'll be paying on the rest of the loan.


    The other question of course is this a good time to fix? In many cases the fixed rates are lower than variable, even with another rate cut the current fixed may be a better deal. This seems like a no-brainer. The conundrum however is, will there be a better fixed offer at a later date? A wait and see approach also has merit.
     
  14. ChristianJack86

    ChristianJack86 Member

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    Thanks Peter. So by this do you suggest the fixed rate being the majority share with the variable component a figure that can be payed off in 2 years?
     
  15. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    I'm not necessarily saying that you should fix most of the loan. That would suggest that you believe rates won't fall further and you're protecting yourself against that outcome. I can't predict that better than anyone else.

    What I'm really saying is ask yourself why you want to fix, then determine the amount rationally via a process consistent with that reason. Don't just pick a random figure. If you can't justify why you've chosen a particular split, then odds are you're relying on luck for the outcome.
     
  16. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Wrong structure just to save some rate.

    Your banker/broker credit adviser either doesnt know, or hasnt been clear in determining your current and future needs..............

    ta
    rolf
     
  17. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Trainee and Rolf make some good points.

    The other big thing to look at is the LVR - is this application 80% or over 80% LVR?
     
  18. Athikalaka

    Athikalaka Well-Known Member

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    If a first home buyer gets a loan with no offset, puts their savings in to the loan but can redraw it out later, can they do so?
    Assuming this loan is OO P&I, if I wanted to upgrade a few years down the track, can I just take any excess funds (my own savings) sitting in the loan by redrawing it in to another savings account and then sell the property?
    Then use any remaining funds + savings to deposit as a new PPOR?
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes, you could if there was a redraw facility.
    Or you could just sell the property without redrawing - depends on the timing