When Variable is less than Fixed, how to proceed?

Hi forum,

I’ve been approved for a OO loan of $1mil, LVR 90%

I’ve currently have it split 60 fixed / 40 variable.

Rates are:
2.29% variable with full offset
2.69% fixed for 2 years.

The confusion is getting the mixed loan ratio right. I’m used to the idea of the fixed being lower than the variable.

However with this difference of 0.4% in favour of variable, would it best be advised to go 100% variable?

What sort of questions should I be asking myself when deciding the best mix?

or if anyone could share their opinion, I’ll love to hear it.

thank you

 

That isn't normal, btw. Fixed rates are generally supposed to be higher than variable.

Why are you doing it?
On the fixed portion, you would 'benefit' if the average variable over the next 2 years is more than 2.69%. So your 'breakeven' point is if variable rates rise by 0.8% evenly over the next 2 years.

You could see it as a 'bet' on interest rates, though forget about 'winning' against your lender, because that's not how it works.
If you go 100% variable, you take the risk of rates rising significantly higher in the next 2 years.
Think of fixed rates more as an insurance policy. You shouldn't think you 'wasted' a premium if your house doesn't burn down.

Other things like whether it has an offset and how much you might be saving into it during the fixed period.

 

Sounds like a good sensible way to think about it. Having a 60/40 split seems like a good way to go for the OP. Quite a few things to consider if signing for a fixed rate but more especially so if going for a term longer than two years IMO.

 

You can always split and fix it later if you're unsure, just approve it at 100% variable now if you want.

How much to fixed and variable depends on your cash reserves and savings.

 

setting up loan ratio is easy.

current surplus after the purchase and expected surplus (money left after mortgage repayments and expenses) over 2 years amount will be variable link with offset.

Example. $ 25,000 cash remain after purchase of house and expected saving over 2 years is $50- 60K than your variable should be around $ 75k- 100k and rest is fix loan.

it was 4-5 months ago but not anymore 3 year fix increased by 1 % in 4-5 months.

Westpac Report - Bill Evans - suggesting that rate will raise in August 2022 and October 2022. His previous prediction was late 2023. He brought his prediction forward almost 1 year due to recently emerging data. As per the Westpac RBA Cash rate to go as high as 1.75% in 2024.

Rate will raise and fix loan will give you assurance.

 

This is a simple and easy way to do it