Variable or Fixed loan??

I am looking to purchase my first IP and with current rates keep going back and forth between variable and fixed options for a principal and interest loan. I am a pretty good saver so I probably want the option of an offset account. Any advice would be very helpful?? I don't have any other assets or properties.

 

It all depends.
My first question would be why?
Why fixed?
Or why variable?

Fixing interest rates is best used as a risk mitigation, rather than a ‘saving’.

Also remember it’s not an ‘all or nothing’ game, and a lot can happen in 3 and 5 years.

For me personally I generally use a combination of fixed and variable rates.

My last efforts were 30% on fixed for 3 years. Then 12 months later I fixed a further 30% for another 3years.

This gave me a nice balance of being able to repay/offset up to 30% of my debt with a further 30% rolling off fixed in 2years.
I don’t like 5 year rates, as too much can change and I want the flexibility to be able to move if I need to, without incurring massive break costs.

The first fixed rates recently rolled onto variable, and I won’t fix again, as I’m intending to repay the loans.

Blacky

 

If it is your only property purchase and you're looking to build savings up just keep in mind that only a few lenders will give you a full offset account against a fixed product (the likes of Heritage, etc.).

 

Variable- because it seems as though you are undecided. You can always fix later on down the track!

 

Couple a things..
1) Are you going to lose sleep if rates go up or face financial hardship?
2) Are going to try and repay loan faster?

If you plan to pay property faster and at the same time worried about rates going up, you can fix part of the loan and other part can be left variable.

If you only intend to make minimum repayments but are worried about interest rates going up, makes more sense to fix all of it.

If not worried about rate movement at all, go with the flow and keep it all variable.

Fixed rates can have hefty exit cost depending upon the rates at the time of selling. If cash/bank rate is lower when selling property, exit fee will most likely apply. If you get the timing wrong on this one, can cost fair bit..

I know someone who had to pay $20k exit fee on land they bought and had it fixed but rates dropped. Situation changed and had to sell urgently due to which they had to pay exit fee.. .

Your broker should be able to guide you on this..

Cheers,

 

I knew a broker who paid about $90k to break a fixed loan about 10 years ago. He fixed at about 8% then rates dropped to 6s. He broker just to go variable and save interest while getting a large tax deduction.

 

It would depend on circumstances but if breaking investment loan when continuing to rent it would generally be deductible in full in year incurred. You could also borrow to pay it.