Hi All,
With interest rates being the lowest they have ever been and most likely another interest rate cut tomorrow, i am in a pity to whether i fix or not.
Currently i am with Commonwealth bank on a variable rate 5.14% but i know i can get lower by locking but their is some restrictions.
SO does anyone know of good deals or have any idea what would be best to do as there is some serious savings i could be doing.
Thanks
The official cash rate set by the RBA at the moment is 2.75%. Even if they do keep dropping the rate, the lowest it can ever go to zero, which means the risk of not fixing it is that it will go down at most a further 2.75%, and you potentially forgo an equivalent drop in your mortgage.
Weigh this however against how much it could go up, consider that in Jan 1990 the official cash rate was 17%. Admittedly it is not likely to go up that high again in the 3-5 year fixed term of your mortgage, however it only has to go up 2.75% for any downside benefit to be outweighed.
So is it worth losing out on a maximum potential 2.75% benefit, at the risk of no upper limit on his high it could go? Something to consider…
Personally I'm a fan of balancing fixed & variable. 4.89% fixed for 2 years was too tempting for me but I still have a portion of the loan variable. Trying to mitigate risk of a rate rise but still see some of the benefits of a rate drop.
dont go for fixed rate, you cant make any extra payment if you could in the future. thats a negative for me personally.
Extra payments via offset
not possible. its already a fixed payment calculated throughout the duration of the loan cmiiw.
Yes, if you're in a position where you will most likely be paying more off to reduce your interest, most fixed home loans do not allow extra repayments.
Go Split. I have 80% fixed for 3 yrs at 4.94% and 20% variable. The Variable component has all the bells and whistles like offset, unlimited repayments and online redraws.
Hmmm.. I didn't know the above, so your suggestion sounds like an excellent compromise!
Yes, this is the best option.
And make sure you understand how much it will cost if you decide to sell your house during the fixed period.
There are always possible changes that might make you change your plans, and it is good to know up front what they will be.
When I signed up a fixed rate, the lender (RAMS) struggled to tell me what it would cost to break the loan, saying "it depends on what the future interest rates are." So I asked for the formula, or for some examples. I was surprised this was difficult, it seems like it would be a routine request.
Eventually I got a formula.
Hi Shannon,
Which variable offset product would you offer right now and why? Not Firstmac though, as I understand their 100% offset loan is apparently not what it claims.
Mick123 - can you explain more? Just wondering what's up with the Firstmac 100% offset. I thought offset accounts were pretty straightforward?
, The fixed vs variable vs split is an age old problem.
Fixed
Good: you get a set rate, no movement (up or down) & certainty
Bad: You're stuck with that rate, lender for the period of the fixed are (unless you pay a heft exit rate). Also it's often hard to make additional repayments.
Variable:
Good: It's flexible, you can often make more then the minimum repayments. An offset account is a great choice, as money sitting in your account reduces interest payments.
Bad: rates go up, rates go down, you're at the mercy of the markets. In previous market rebounds (we're bound to have one in the next few years) the hikes in interest rates can see rate rise quickly, even as high as the mid teens.
split:
Good: You get the best of both worlds. If you pour all your money into the variable loan, you can cover yourself incase of interest rate rises.
Bad: You usually pay twice the fees. It also have both the bads above.
We split our home loan. We came into some money & our variable loan was fully paid out 12mths ago. We're stuck with a 3yr fixed, so excess money can't pay off the loan & reduce the interest, instead we're earning interest & paying tax on that. My biggest regret with splitting is that we're with NAB, whom we really hate dealing with as they seem to go out of their way to be unhelpful. It means we're stuck with them for the life of the fixed loan, as the exit fees/penalties are basically 3yrs of interest. If we were purely variable, we would have been able to find a new lender.
Forgetting my NAB experience, and I knew it would take me 10yr to pay off my loan. I would probably split it 40% fixed for 5yrs & 60 variable. Interest rates are historically low. The US economy is showing signs of getting traction. When interest rates start rising, if you've locked in a rate at under 5% for 5yrs, I suspect you're be very please with yourself in 5 yrs time. If interest rates are back above 7%, you'll be saving $2k/$100k/yr that's a free holiday!
No one is "stuck" with the full term of a fixed rate loan. You can still leave. Often the cost of breaking the loan is offset by savings made with another lender.
There's always the risk of rates dropping further, so it's a gamble.
I tend to think that there's a good chance they wont drop much more, so definitely worth investigating what further discount you can get.