Hi All,
I was looking at fixing my home loan at 3.96 for 3 year, just wondering people thoughts if this was a good idea. I have heard a lot of talk about rates rising end of the year? Or do you think variable is the way in this market?
Thoughts on fixing home loan at 3.96% for 3 years
silkysmooth on 29/07/2017 - 07:03
Comments
This is a good general rule of thumb. We'd probably add:
1. There is a big difference between commonly available fixed rates on offer from major banks and limited time promotional fixed rates on offer from small banks looking to secure new business. The latter genuinely can save you money, the former has statistics to suggest that you will not work out ahead. With respect to sharp limited time offers, they come and go fairly quickly and you have to look for them. We had an extremely popular offer about 1.5 years ago from Newcastle Permanent at 3.69%p.a. fixed for 2 years with a $2-3K switching rebate. A number of people were saying the same thing with respect to the house always winning - but sincerely, sometimes a good bird in the hand is worth two in the bush as they say.
2. How much do you wish to 'set and forget'? If your desire is to have the ability to not spend time thinking about your mortgage for the next few years then perhaps choose a well priced fixed (which should be approx 3.69-3.74%p.a. from a reputable lender for 2-3 years). If you choose a variable when carrying that same desire you may find that without the time taken to renegogiate or even switch products you will find the relative value of the product slipping (in much the same way insurance renewals present value slippage with increased premiums over time).Hope this helps.
Regarding 1, yes banks can see the IR forward curves and after adding transaction costs built into the fixed rates they offer, statistically the customer doesn't come out ahead. But there are regulatory distortions, e.g. APRA hammering investment IO loans. I just fixed 2m total of loans from 4.89 variable IO to 3.88 2 years P&I - cashflow wise I lose about 1k per month but overall I save 40k over 2 years. Moral of the story is regulatory distortions make it worthwhile.
Did you get that rate for investment loans or PPOR?
@echelon6:
Thanks.
Nab won't drop below 4.2% for investment.
They'll do 3.88% for ppor though.
I'm waiting for my broker. If I can't get nab to 3.88% fixed then im moving all my loans.@echelon6:
Yeah I did. Person on the phone was useless.At least I know 3.88% is achievable.
Thanks for your help.
Newcastle is still cheap for 3 year fixed…
If it aint broken don't fix it
RBA don't have the balls to raise the rates. Even if they do, expect a raise of only half a basis point and that's it.
The only exception is the Feds continue to raise their rates much more which in turn causing our banks to raise their rates due to funding cost (most of our banks are on external debt, borrowing from foreign)
Until they do an everyone will be like "awww mi dream… the gr8 strayan dream iz ded…. give me ubi" etc etc.
Everyone's situation is different and you really haven't given enough information ie what you are paying now, if you are making extra repayments etc.
But as a general rule tomclancy comment is probably spot on
I disagree with the other comments in that I believe rates are probably at a nadir and most signs are for rates to increase if not staying the same.
The rate of 3.96% is a good rate and I doubt you'd do worse not fixing it.
Naturally depends on individual circumstances, and no one can predict the future. My belief is based on historical trends and interest rate trends elsewhere in the world.No way nadir is a word… TIL
Nadir… You learn something new everyday :)
the thing I don't like about fixing is the cap on extra repayments.
Can make as much extra payments with this product
or you can fix 80 and keep 20 variable. variable one can have offset….
It comes with multit off set account 100% .only catch is u can't have more thank 50 k in accounts.
Not an issue with that limit for me
@silkysmooth: True. 50k is quite a lot for 3 years savings.
NewCastle Permanent fix is 3.89% unless there is some other catch with that.
Thanks for your feedback guys. This is premium fix so I can make as much extra payments as I like and have multi offset accounts. ( no other fees) I think I will seal the deal Monday. I'm only one working as we have to kids just need a bit of certainty.
Is it for OO or investment property? Which bank you are going with?
Did you check auswide?
@silkysmooth: it's another bank with better rates than scu. Message me if you need further information
You would be dumb not to, I doubt they will drop, and if they do not by much. on the other hand enjoy a budget that won't change :)
That's my thoughts no surprises
Media is suggesting rate rise pain, so this MAY be a good idea.
Also what is the difference in rates between variable and fixed?
My personal preference would be, if rates were the same, then I would do 50/50. If not, then I would go the cheapest rate.
3 years is not a long time & it will be over before you know it.
With BankWest if you fix part of the loan and have a savings offset account then it's only applied at 40%. If you had a split loan then you can apply the offset to the variable part and receive 100% offset on that. The offset saving you hundreds of dollars a month in interest as if you'd already paid off part of the loan.
The second thing with BankWest is that they limit repayments-in-advance on the fixed portion of the loan to $10kpa. You can usually pay a lot more than this into your loan in the first year and those payments should be your top priority because every $1 today is worth about $3 over the life of the loan - and every year you wait to start paying that extra it's far far less effective. Meanwhile you can usually pay as far in advance as you want for the variable portion.
So it's super important you understand 100% exactly what limitations the bank is going to place on whatever fixed/variable/mixed loan you get.
When doing this for myself (on a principle + interest loan for my home) my method of calculation was:
* How much can I overpay on the variable portion over the next 3 years in a best case scenario?
* Make that variable. Leave the rest fixed. For reference - the two had similar rates at the time with the fixed just 0.2 percentage points higher. We could have even gotten a better deal from other banks but we stuck with BW for other reasons (long banking history and me being a full-time hired contractor which causes lots of problems for getting approved).
* I pay up to the $10k limit on fixed per year, as that is the highest interest usually, and then anything else extra goes to the variable.I'm halfway through the fixed term and so far I'm meeting expectations. I've put about $40k extra into the loan so far, on top of having about $40k in savings (technically my budgeting float for this month and next month) that offsets the entire variable loan interest - so it's not nothing. (We're a dual income home, though my partner is lower income, so, we're not magical or anything - we're on the west coast, bought a very reasonably priced home, save a lot and don't go anywhere).
My observations are that - at first the variable rate went way down below our fixed rate, but has since climbed back up and even above it. So overall … the interest portion does not really matter. We like having known repayments so that we can budget, and so the flexibility of offset and repayment amounts is what should determine most of the loan allocation.
Disclaimer: I'm not a financial advisor.
Hey there. I'm a CPA and have experience in finance roles, and am myself a property investor (2 so far).
A few quick rules of thumb:If you think it's even a remote possibility that you will sell the property in question, do not go with a fixed loan. Break fees apply on a fixed loan if you terminate the loan prior to the end of the desired term.
If you have a large amount of funds that you would like to place in an offset account to reduce the interest paid on the loan, then generally you would prefer to go with a variable loan.
If you feel that you may have a windfall in the near future (tax return, inheritance, selling shares) and would like to pay off your principal directly or place in an offset account, then generally you would prefer to go with a variable loan.
The rate of 3.96% is an excellent rate. You only need to look at historical rates to see this.
The key area to look at is the 3 year term. Once you fix the rate, the flexibility of the homeloan reduces greatly (i.e. as per above, no offsett account, no selling and no directly reducing the principal). This may suit you or may not.
I personally locked in 3.88% for 2 years for principal and interest. Reason being:
This is an excellent rate, compared to the rate of 4.44% interest only on investment loans. Therefore the difference between the P&I and the I/O only minimal over the month and I get ahead on the debt reduction, even though it's an investment properly. It's always good to reduce risk.
I have no intention of selling the property. Currently have a happy tenant, and the value of the property has grown 70% in the last 3.5 years.
I am allowed to make extra repayments of $30K over the fixed term of 2 years. I know based on my current financial situation that it would be unlikely that I could add more than $30K to the repayments, therefore this is not an issue to me.
Therefore so summarise, please consider the areas I have outlined above, basically the circumstances you feel are likely over the next 3 years.
Kind regards
B
I think the main qn to ask yourself is whether or not your circumstances are likely to change over the next 3 years financially. If so, you could find yourself sitting on a pile of money you can't put into your mortgage. Of course this is only an issue if you can't find something to provide a >4% return :)
Nah don't think nothing will change I'm only working in family don't expect any extra cash, I can put extra 50 k off payment and have 50 k in off set. My loan only 190 so happy with that
Have you considered all the other issues with fixing rates. Its not as simple as just 'fixing rates" There are plenty of catches.
Normal fix won't work for me but this allows extra payment and off set that's wat got me over the line
APRA Smashing the banks with IO loans..
My rates have gone from 4.16 to 4.94 within 6 months
I fixed 2 of my loans I/O for 3 years @ 4.72% the other is still variable I/O @ 4.94% - only reason i dont move to P/I is i want to acquire more next year and this will hurt borrowing power
All my loans are currently with CBA
RAMS savings is 3%. So 3.96% borrowing is great.
The gab is closing , I just wonder if rates will go lower
Also remember that when you fix rates, the quoted rate might not be the rate you end up with. Fixed rates are constantly changing and the rate you get is the rate at the time that is fixed… so if you get quoted a rate but the loan can't be fixed on the same day, you might end up with a different rate. For example, if you're splitting your loan and fixing one of the loan splits, this might not necessarily happen on the same day. Its worth figuring out how long it'll take to actually fix the loan from when you're quoted the rate: and if there's an upcoming change in rates, most lenders have an option to 'lock in' the rate which usually comes with a fee…
I told them to make 100% I'm getting that rate. Do wats rate lock?
Probably not… rate lock only if you know there's an upcoming rate change, you can't fix the loan in time, and the cost of locking is less than what you would pay after an increase in rates.
Yes !
If you're fixing to provide repayment certainty then go for it.
If you're fixing to 'beat the banks/market' then you're gambling and the house normally wins.