Variable interest to Fixed Rate 2 Year CBA

Discussion in 'Loans & Mortgage Brokers' started by shootingfish, 11th May, 2019.

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  1. shootingfish

    shootingfish Well-Known Member

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    Getting 4.95% on a variable rate at the moment on one of the investment loans, it also has an offset account (no misa with cba anymore - but they now just do an offset account?)

    Saw in netbank option for 4.04% pa 2 year fixed rate investment home loan.

    For $1m loan that's a saving of nearly $10k a year.

    Downsides to this:
    Can't cancel loan or sell within 2 year period without massive fees [Long term house so not an issue]
    Repayments not possible nor will offset account work anymore [Even with $40000 repayments each year this will still be cheaper]
    Have I missed anything?

    Questions for people who have done this:
    Loan is 25 years, would we have to reaccess the loan with all documents after the 2 year fixed rate period ends?
    Would this close the offset account as as consequence or keep it there and just default to the terms and conditions rate of 1.5% offset instead of 100% offset

    For all intensives purposes this is a loan term hold property.
     
  2. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    fixed rate breakcost decreases over time, if rates funding rates stay constant

    If u need an offset, split into a SVR variable and have the 100 % offset on that ?

    ta
    rolf
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Are you seeking an IO loan ? if yes, then here needs to be at least 2 years left on the IP period.

    The loan wont need to be reassessed if rolling over to PI, but if you need to extent the IO period you may require to prove servicing, but not valuation

    ta
    rolf
     
  4. shootingfish

    shootingfish Well-Known Member

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    Sorry can you elaborate on brekcost decreases over time?

    Do you mean if interest rates decrease my fixed rate will be the same and I will lose out if variable becomes less than fixed (though unlikely)
     
  5. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Ignore variable rates for a minute , because they may stay steady, while fixed rate funding costs may fall.

    say you fix at 4% and the same product is available at 3 % in 12 mths, you will have a larger break cost than if the rate had remained stable.

    Fixed rate break is a function of 3 things

    • funding cost at issue and funding cost at break
    • loan amount
    • and period of loan left to run to complete
    Banks like fixed rates because the margin is locked in regardless of what happens with variable OR fixed rates.

    ta
    rolf
     
  6. shootingfish

    shootingfish Well-Known Member

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    Ah OK. Basically if I choose to end the loan or pay extra beyond the $10k limit, then I will be charged fees/rates based on 3% vs 4%, assuming that rates went down to 3%
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    pretty much, doesnt work exactly that way.

    You may also pay a break cost if rates dont move at all

    In your case, being a long term hold its not likely I guess and > 80 pts rate difference between the variable and fixed is a decent chunk


    ta
    rolf
     
  8. shootingfish

    shootingfish Well-Known Member

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    Thank you very much.
     

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