To Fix or Not to Fix?

Discussion in 'Loans & Mortgage Brokers' started by Longrass, 19th Jan, 2020.

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  1. Longrass

    Longrass Well-Known Member

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    Hi team!

    3 of our properties are currently finishing up on their 2 year fixed rates. We have been offered 2.99 fixed or variable with RAMS on our investment loans, but they won’t do squat on our PPOR, so looking to refi it across to ANZ. They are offering 2.98 fixed for 3 or 3.09 variable. All three properties are PI and part of a mid term plan to clear 100% of the debt and retain.

    So... is now the time to fix?

    The US is on the move upwards, property seems to be rebounding, but retail is on struggle street. Not sure if we will see another rate cut or not. Even if we did, how much lower will lenders put their money out at?
     
  2. albanga

    albanga Well-Known Member

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    Really no one can ever answer this question.
    The decision to fix is a gamble against interest rates moving upwards. All you can really do is base it on what is being said.

    So for mine, would I gamble against IR’s going up. Absolutely Not.
    All indicators point towards 2 or more rate cuts to come this year. Their is zero talk about rates going back up anytime in the near to even distant future.

    Throw in losing flexibility and benefits of variable then me personally would not be fixing any loans right now.
     
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  3. Gockie

    Gockie Unicycle - get exhausted but never two tired Premium Member

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    Those rates sound really good. I don't see much downside to locking unless you were to want to sell within the 3 years. I guess I don't really see variable rates jumping up significantly anytime soon too though so... go with either.
     
  4. Lindsay_W

    Lindsay_W Well-Known Member

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    A different thought
    Why not go with AMP on the PPOR Loan, variable rate is 3.02% P&I with a Master Limit that allows you to debt recycle?
     
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  5. Terry_w

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

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    How did well did you do when you fixed these loans? Do you think you saved interest overall?
     
  6. wylie

    wylie Moderator Staff Member

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    The only time we've ever fixed is when we needed to guarantee our repayments would not increase when funds were pretty tight. Otherwise, we would have stayed variable.

    What is the loan amount you would be fixing? How much would a little increase affect your repayments.

    When we have fixed, it has meant we cannot offset that loan even if we wanted to, and this actually did happen last year when we did have funds we could have paid into the two fixed loans to reduce the interest, but we had a limit over which we could not go without triggering a break situation.
     
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  7. Cia

    Cia Well-Known Member

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    I fixed 50% of one of my loans once in 2006 and I regretted it as when variable rates went down we could see a massive difference between the fixed and the variable payments easily for the same property. We saw how much more we were paying and what we could have saved every week. We worked out that it was cheaper to break the IO period and pay out with a break fee than to stay on the higher fixed rate. I've never been a fan of fixing as I've since realised that most times banks know which way interest rates are going because they're setting them. And as Paul Keating once quoted, back the horse called self-interest every time. It's bank's business to make money! LOL hope that helps.
     
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  8. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    fixed rates are more like insurance most of the time

    ta

    rolf
     
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  9. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    The underlying rate on a fixed loan is more related to bond markets, and thence a lenders desire for a margin on what they buy the money for.

    Margins on fixed rates are likely tighter Im guessing, since the income spread is guaranteed

    ta
    rolf
     
  10. Anne11

    Anne11 Well-Known Member

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    A few times that I have fixed my loans, interest rates went down much more than the fixed rate vs prior variable. So in hindsight it would have been better to be in variable if the purpose is to save interest.
     
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  11. magpieseason

    magpieseason Well-Known Member

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    Is this rate for new customers?
    With AMP im paying 3.75 p&I var for ppor and 2 × inv loans 4.65 p&I var.
    All with .08 discount and yearly package $350. Pretty sure don't have master limit. What is it ?
     
  12. Terry_w

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

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  13. Lindsay_W

    Lindsay_W Well-Known Member

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    Yes it's for new customers
    You should definitely look at refinancing away from AMP or at least try to get them to reduce your rates, .08 discount is abysmal. You have high rates on on both PPOR and Investment loans.
    Master Limit product needs to be selected at the time of application in order for it to be applied to the loan, otherwise new credit assessment required.
     
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  14. euro73

    euro73 Well-Known Member Business Member

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    Today's 2 and 3 year fixed P&I INV rates are generally priced about 20-25-30 bpts below the Variable P&I INV rates - but it does vary a little from lender to lender ...so there's basically a full RBA cut of safety net built in already in many cases... Banks passed on an average of @ 15bpts last time the RBA cut the cash rate.... so IF they did that again with future cuts ( and there's no guarantee they would pass on even 15bpts next time, or anything at all ) you'd need 50bpts from the RBA to "maybe" get 30bpts in your pocket.....to be @ break even..... So it sort of comes down to

    Do you believe the RBA will cut 50bpts of the remaining 75bpts?
    Do you believe banks will pass on more than 30bpts of that to borrowers?

    When viewed that way, it's probably reasonable to suggest that there is minimal downside to fixing P&I INV loans at the moment .... and you know, it can even improve borrowing capacity by a smidgeon.... Probably the only truly compelling argument against fixing is if you are looking to sell during the next 2-3 years.

    But whatever people decide...borrowed money is cheap either way, and everyone should be making debt reduction hay while the sun shines.
     
    Last edited: 23rd Jan, 2020
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  15. VS_2019

    VS_2019 Member

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    CBA is offering Inv P+I, 1 to 3 year fixed (wealth package) at 3.19%, Inv IO 1-3 year fixed 3.39%
     
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  16. spludgey

    spludgey Well-Known Member

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    If it's the same rate, I'd go variable, but if fixed is more than 0.25% below variable, I'd go fixed for two years. But it's a bit of personal preference.
     
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  17. VS_2019

    VS_2019 Member

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    Enquired CBA and found that for Inv P+I, there is a 0.44% gap between fixed (1-3y) and variable as of today.
     
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  18. Navjit

    Navjit Member

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    Really depends on individual circumstances. I have a 18,000sqm block 14km from Brisbane CBD still zoned semi rural and city council plan not being updated till end of 2022. So with 1.6m loan its really important to be able to manage cash flow and fixing it does saves quite a bit of interest and brings peace of mind regarding repayments. Even if the cash rate drop twice this year - there is no guarantee banks are going to drop fixed interest rates further. if they do great but who knows. Westpac 2.99% fixed for investment P&I LVR < 70% sounds very enticing :)
     
  19. TMNT

    TMNT Well-Known Member

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    I fixed most of mine at 3yrs for 3.99% pi just under a year ago,
    Sure its lower now, but i got them down from 4.7%ish

    So pretty happy

    2.99% is really good.

    I doubt rates are going to go too much lower
     
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  20. NG.

    NG. Well-Known Member

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    This is true however the position of the variable rates are at a premium to advertised fixed rates atm hence why they are appealing.