I am seriously considering fixing the rate on my mortgage for 5 years. I've previously gone with a fixed rate and done ok though I accept it is a risk. What does the Ozbargain community think about the trajectory of interest rates?
Interest Rates, Should I Fix My Mortgage Rate?
Ozbargainite on 15/12/2016 - 00:24
Poll Options
- 0Fix for 1 year
- 1Fix for 4 or 5 years
- 6Fix for 2 or 3 years
- 27Stay with variable rate
Comments
Investment properties.
Back in the 80s and before you could fix for the whole life of the loan, in america and many other countries you can still do that, however in australia we are getting so screwed.
Depends on how much income you earn.
If you fix, you will only be able to pay off $10000 extra per year.
Cheers
I've not really done well, fixing it… if you do, I suggest it be for a shorter term, e.g. 2 years. I'm locked in for 3 years on 60% of my mortgage… and I did this when it looked like interest rates were going up (funding costs, not RBA driven), and then interest rates started coming down some more.
I am in the same boat, fixed 50% for 3 years which is finally about to finish in couple of weeks time. Paid about 1k extra interest to bank over all because of this
Banks don't offer rates to favour you. They protect themselves first. Always remember that when considering a fixed rate.
Lock in maximum of 80% so you can pay extra into the remaining.
I like this.
Splitting your loan might be an option to spread risk.
You can pay extra into the variable portion if you want and still have a good chunk locked in at a certain rate.
My friend had been offered 4.25% on a 5year fixed loan. Not sure how that compares.
For owner occ, I'd recommend fixing a portion, so you can still have an offset on the other.
For investment, 5 years is a long time, there's a lot of uncertainty past the 2 years mark, what if you need to sell up quickly? You'll have to pay a break contract cost.
It all depend on your financial situation. Hope you make an informed decision, and take the option you're regret less.
with weak GDP announced, the RBA is likely to drop rates in early 2017… I wouldn't be in a rush to fix just yet.
Speaking as credit advisers, the major reason why most people fix should not exclusively relate to trying to beat the market. It is possible, however, it is hard to do. It really should relate to the desire to have budgetary certainty (i.e. a risk management play) or to put one's finances on autopilot (you know you are not going to have head space to review rates or not be in a strong position to switch lenders) so you fix.
Given that we have been in record lows for interest rates the last couple of years, it has not been a bad bird to hold in hand with respect to fixed rate pricing. We had a large number of clients fix in at 3.59-3.69%p.a. for 2 years just under 2 years ago - that price has consistently been ahead of the market. Naturally, depending on your requirements YMMV (widely).
If you are exclusively interested in beating the market, the factors to consider are as follows:
Reasons for variable delivery rates to consumers to increase:
1. Australia's Credit rating, if it's downgraded the cost of wholesale funding is likely to increase.
2. The Fed raising interest rate rises in the USA will likely proliferate costs in bond markets (market accurately picked this recently and we saw fixed mortgage prices adjust ahead of Fed announcement).
3. BASEL and APRA requirements driving up costs of compliance and overheads - depending on level of market competition these costs may be pushed to consumers.
4. RBA adjusts cash rate upwards to slow lending growth to abate any concerns to do with Sydney and Melbourne property markets.
5. Defaults increase - investors demand higher returns in exchange for perceived risk to do with funding RMBS.Reasons for variable delivery rates to consumers to decrease:
1. RBA adjusts cash rate downwards to stimulate economic growth amid concerns of recessionary fears for areas outside of Sydney/Melbourne.
2. Competition between lenders increases causing them to cut margins to win business. This has already been happening. Lenders have indicated a desire to increase margins - so realistically there will need to be some strong competition to overcome that desire for lenders to increase returns to investors.
3. Regulatory overheads are scaled back. APRA decides to remove speed limits on investment lending growth or legislation/regulators dilutes NCCP Act compliance overheads- profitability of loans increases. Lenders may choose to pass these savings on to consumers depending on levels of competition.
4. Bond market pricing drops dramatically because of reasons such as the US Fed feeling their economy is tanking or other classes of assets are seen as relatively high risk in comparison RMBS.Depending on how you weight those major factors listed above you should be able to come up with an answer on which way you feel rates are headed. In short, the people who are supremely confident on picking these movements are some of the highest paid people in the finance world and are not likely to share their insights altruistically. Looking at ASX 30 Day Interbank Cash Rate Futures may be the closest you can get to a free window into where big money is picking the cash rate (which is an influencer of variable rates) to go in the near future.
Hope this helps.
Bloody good break down
Thanks mr_asstight - bloody good username BTW ;)
Consensus in the office is that we should've added a point 5 to reasons for variable delivery rates to decrease…
5. Savers are willing to accept lower returns on savings because of the relative risk of other asset classes (NB: Don't laugh! Interest rates have gone to zero in other countries in recent years). Low interest rates paid to savers = the potential to offer low rates to borrowers for lenders who fund their mortgages using customer savings (which are typically ADIs).
Wow, how does a layman get ahead in the game of beating the banks.Is it even possible?
I think best is just do the bit of your "own' research, take some help from online forums and make an informed decision on your circumstances and sit tight to see whether you have made the right decision or not :)
Alternatively, try and search for those "genius people in finance" and see if you can befriend them. If you do, please share their thoughts on Ozbargain :)
Thanks for the great replies and poll votes.
Just some context.
The Loan rate I've been offered is 4.14% for 5 years and I can pay a maximum of 5% off the principle a year. Certainty is a big driver for me at the moment.Thanks for the info ! May I know which bank ?
@Ozbargainite, the offer you've been made doesn't sound too bad depending on your credit profile & individual needs (i.e. what you feel is important by way of features, what type of lender you wish to deal with, etc).
That said, there is cheaper available from other banks at present - for example, 3.99%p.a. is still possible on a 5 year fixed loan. If you wanted some guidance, please feel free to send us a PM.
@naritas 3.99% is pretty good rate and I am assuming its OO Loan. What is the best variable for an Investor loan. Just looking for something for $450K . Thanks !
Hi ozshaz, the best product will largely be a product of your individual requirements. As such, we can only speak generally (i.e. not financial advice) in this context. So, generally speaking, most variable products <4%p.a. issued by a reputable lender could be considered sharp at $450K loan size. There may be some room for further reductions dependent on:
1. LVR (lower = cheaper with some lenders).
2. The repayment structure (P&I is cheaper than IO with some lenders).
3. The type of lender (small non-ADIs are traditionally a tad cheaper than banks but don't come with the Commonwealth Guarantee on deposit funds).
4. The sophistication of the product (things like offset accounts, fee free redraw, credit cards, etc all typically = higher cost).
5. Fees - entry/exit/operational costs. Ask for a full list of fees and charges. Don't solely rely on comparison rates as they provide extremely limited value as they exclude a lot of potential fees/cash flows and overstate others (especially for a $450,000 loan as they are commonly based on $150,000 loans).Hope this helps.
PS As a word of warning - the investment lending market is quite patchy at present and there is talk of increases with many lenders. So you may wish to check the rate at application will apply at least for the foreseeable future (some lenders have announced changes to take effect later this month and early next year).
@naritas: Appreciate your input ! Perfect assistance ! I had a look around and seems to me AMP are offering 4.03% Investment loan comparison rate IO. They have waived the application fees. I am sure you may have dealt with AMP..any pros and cons ?
Appreciate your input !
You're most welcome :)
I am sure you may have dealt with AMP..any pros and cons ?
We have dealt with them before, in fact, AMP has been very popular with our more wealthy Sydney and Melbourne clients.
Pros:
* They offer some of the most sophisticated online functionality available to mortgage borrowers. Things like the AMP Mobile app and My AMP are considered to be some of the best online tools available and were developed with the input of the AMP financial planning network.
* They offer the ability to have up to 10 loan sub-accounts. Again, this is a standout - most lenders don't offer the ability to have such granular reporting/division on the use of one's loans. If you were running a number of investment projects or like to have a very tangible expression of what is happening with your finances this can come in handy.
* They're a bank (an ADI) which means commonwealth guarantee on deposit funds and they have a good reputation for being financially sound.Cons:
* There is no such thing as a free lunch in the finance world vis a vis you pay for that functionality and the reputation. This is not a bad thing if you value such things (and many people do). Also, the price premium is not large in most circumstances. It just means that they don't aim to be the absolute cheapest lender in the market.If you wanted any further input please feel free to send us a PM as it would be our pleasure to assist.
Aussie home loans.
Aussie Home loans.
What about them?
@tinnybastard: I think @ozbargainite replied to my question in which I had asked the rates offered were from which bank.
Don't mean to rob your blog, but State Custodians were offering investment mortgages at 3.99%, and OO 3.69% (as of today). I don't have a lot of information. Spoke to customer service about the product - offer offset account, free drawdown, no charges for withdrawl with mastercard. However, annual fee $299, evaluation fee for home evaluation $286 (one off). If anyone knows of someone better, just looking for pre approval at the moment.
thanks.I fixed my PPOR.
10% Variable, 90% Fixed @ 3 Years
3.85% Variable/3.84% Fixed @ 3 YearsLeft 10% as the portion I would most likely pay down over 3 Years (very unlikely i would pay that extra much down), which has a 100% offset account.
I just want certainty over the next 3 years!
Which bank if i may ask?
Merged from Home Loan - Time To Go To Fixed Interest?
Is it time to fix part of your home loan if not already? Does anyone else predict that banks to start increasing rates soon? Given CBA and Westpac did increase fixed rates before Christmas break? The other 2 major banks haven't yet but can anticipate that they will anytime soon? I believe so and these are my 3 reasonings:
- With US increasing rates and predicated more to follow in 2017 would make you think that borrowing cost for Aus.
- Almost certain that Aus to loose AAA rating (well was all over before Christmas on media)
- Trump factor; Negative impact to Aus as close aide China nor in his priority. (Time will tell how successful he has been)
What are your thoughts?
ANZ and NAB and a lot of other banks have increased their fixed rate / investment loan rate. Not just CBA and Westpac.
CBA fixed for 3 OO 4.19% whilst NAB at 3.89%
What's your point ? :) NAB 2 years fixed was 3.74% prior to the rate rise. It is now 3.9%.
@tomleonhart: May be confusion here. I was referring to 3 years. NAB havent yet touched there 2/3 year fixed rates.
@nickskewl: I see. Your post didn't mention anything about 2/3 years in particular so i thought you were asking about fixed rate in general.
Someone posted a poll about this a few weeks back, majority suggesting stick with variable.
If the mortgage is for an owner-occupied property then I can't see the point unless there's some reason that you think your earning power will decrease in the future.
If it's for an investment property then there's situations where it makes sense.