Would you take a fixed rate of 2.29% on PPOR

Discussion in 'Property Market Economics' started by Vine Street, 5th May, 2020.

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  1. Vine Street

    Vine Street Active Member

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    Currently have a mortgage on the PPOR at 2.99%

    Plenty of $ sitting in the Offset

    Option to fix part of the loan at 2.29% for 2 years - thinking of fixing most of what is currently outstanding

    What are peoples thoughts on interest rates?

    If there's no change in rates over the next 5 months while Jobkeeper/Jobseeker are around then they'd have to fall significantly to end up losing on the deal
     
  2. Lindsay_W

    Lindsay_W Well-Known Member

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    As long as you don't need the benefit of the funds in offset (no offset during fixed period)
     
  3. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    2.29% is certainly a very low rate and it's hard to imagine that rates could drop below this over the next few years even in this crisis. However there has been plenty of predictions that rates couldn't go lower yet here we are. It seems that nobody can really predict how low rates will go, so that's the risk you take.

    If you've got a lot of money in an offset account, perhaps change the loan into a variable & fixed split loan, retaining the benefit of the offset account on the variable portion.
     
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  4. Triton

    Triton Well-Known Member

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    It's an interesting one, worth crunching out the numbers. Even if variables drops below 2.29 next year, you might still be ahead based on what you have saved till then.
     
  5. Vine Street

    Vine Street Active Member

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    The offset is nearly 70% full, so would only work by fixing part of the loan - say 20-25%

    And having the use of the Offset on the variable compontent
     
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  6. Vine Street

    Vine Street Active Member

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    I guess the next move in interest rates will be down, but if there's no rate change in the next few months then there's a decent chance of this being a winning move
     
  7. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    Fixed rates are so low at the moment because the government deliberately slashed the bond rates in early March.

    Around the same time the RBA made a second rate cut, most lenders did not pass on any of the second rate cut sighting 'funding costs'.

    I wouldn't expect any further RBA movements to affect the fixed rates. Odds are the variable rate wouldn't move much either.
     
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  8. Triton

    Triton Well-Known Member

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    I think so, even if you were better off with variable after the full 2 years, it wouldn't be by much
     
  9. vbplease

    vbplease Well-Known Member

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    What's the comparison rates? The comparison rate for low 2's fixed, seems higher than variable..
     
  10. Rex

    Rex Well-Known Member

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    Yeah I would split the 30% of the loan that isn't offset on to the 2.29% fixed rate, seems like a no-brainer.

    The rate is 70 bps below your current variable, and it's hard to imagine a scenario where variable rates drop even more than this and quick enough to see you pay less interest than 2.29% over the 2 year period.

    And even if your plans change and you need to break the fixed period early, you'll only pay a break cost if market rates have dropped even further from where they are now.

    The only reasonably possible 'opportunity cost' risks I can think of in the next 2 years are perhaps
    • 2 & 3 year fixed rates dropping a little more in competition for customers
    • Ultra-low rates being offered on fixed longer terms i.e. 5 years @ 2.29%, but this being wound back by the time your 2 year fix period ends if the economy has improved by then
    But on the other hand you are paying 70bps higher rate sitting on a variable right now, so you're guaranteed to loose money every day you hold off on taking up that sharp fixed rate. Decisions decisions
     
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  11. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    That's because the comparison rate assumes the standard variable rate would be applied after the fixed period. This isn't the case.

    For this and other reasons, comparison rates are a fairly useless way of comparing loan products.
     
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  12. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    2.29% is a good rate already. But there are a couple of banks out there that offer 100% offset on fixed rates. 2.14 -2.25% owner occupied 2 or 3 year fixed.
     
  13. Lacrim

    Lacrim Well-Known Member

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    It might not be the lowest ever but its low enough for me.
     
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  14. Lindsay_W

    Lindsay_W Well-Known Member

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    What lender offers 2.14% fixed rate with an offset account during the fixed period?
     
  15. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    TMB had that special but gone back up to 2.19% now. My bad
     
  16. Lindsay_W

    Lindsay_W Well-Known Member

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    Thought that rate sounded incorrect - the app fees with TMB wouldn't make it worth it to switch for a 0.1% difference in rate IMO
    Then you have the issue of auto switching to their Flexi Rate product at the end of the fixed term, 4.37% P&I Variable OO :eek:

    "Then, at the end of the fixed period, your rate will revert to our Flexi Choice Home Loan variable interest rate, or you can choose to re-fix for another period of time."
     
  17. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    Depends on how big the loan is so you can work out the end cost.
     
  18. Lindsay_W

    Lindsay_W Well-Known Member

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    Don't need to know the loan amount to know a bad deal when I see one ;)
     
  19. Waterboy

    Waterboy Well-Known Member

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    don't you need to be in educational sector to join TMB?
     
  20. bmc

    bmc Well-Known Member

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    or a related family member of the edu sector