Just went to my bank and they wouldn't bunge anymore with my rates. Ppor sitting at 3.59% PI and 4.31% IO for investment. I'm a bit stuck as I tried refinancing but because my wife is working less due to caring for our adhd kid, we don't have income to show. I can fix my loan for 2 years to reduce interest to 3.18% and 3.89% respectively. Should I fix now or later as every news out there is pointing out that rates will move lower again soon? Appreciate everyones advice and thoughts.
Can't refinance. Should I fix my 2 loans?
love2buy on 27/07/2019 - 11:57
Comments
The RBA won't move lower, so it's upto the banks to pass on the savings.
Looks like they've done the minimum here of passing the savings, so it can do either way in the near future of the banks either keeping this rate or decreasing it for you. Though I feel like the rate will increase naturally after 1.5 years, so you have some time. But the banks are not stupid, they're they because they are much smarter than you or me, and they won't allow you to fix the loan just before an increase.So it all comes down to you, how do you think the interest rates will move in the next 1-3 years?
And based on what you think, is this a more beneficial move for you?
I'm sure more knowledgeable people than I can chime in, maybe they can find a better deal/solution.Have you considered a split with a mix of variable and fixed?
If you can't get a better rate on the variable (with your current or any other lender), I reckon you'll be better off saving the ~40bps and fixing it. In this scenario, I reckon the only reason you shouldn't fix it is if you are not 100% sure you won't want to break the loan over the next 2 years (breaking fixed rate loans attracts break costs). I haven't checked the economists latest predictions on cash rate changes, but it might go another 25bps over the next 12 months. Even if the RBA went another two cuts over the next 2 years (which could happen, but I doubt the cash rate would go all the way down to 0.5%) it is probable the banks wouldn't pass on the full 50bps, and pass on only, say, 40bps, and you still wouldn't get the full 40bps discount for the full 2 years (on a variable rate loan), but you would get that 40bps discount for the full 2 yrs if you fixed now.
Some people would also consider the scenario that maybe fixed rates will go lower over the next few months, and you could wait and fix it at a lower rate a few months from now. Sure, the fixed rates often do drop a bit when cash rates do (who knows, the RBA could go again in the next few months), but it is mainly the short end of the yield curve that drops the most (as a direct result of the cash rate dropping), while the longer term fixed rates drop mainly due to the general consensus of the long term economy prospects (such consensus can also be influenced by the RBA's comments around cash rate decisions, which are usually negative when they decide to drop). Fixed rates are the lowest they have been for years, and the yield curve is super flat. I don't know if we have seen the bottom of the mid-long term rates, but surely we are close. I can't imagine them getting much lower. Even if the cash rate drops further, there is every chance the mid-longer term fixed rates could go up. Now is about as low as the fixed rates could go, so a great time to fix. What are the 3 year rates?
The RBA is talking rates down because the economy is in trouble.
As long as the prospect of a recession is in the wind then the long end of the yield curve will continue to come offThe yield curve will only drop off further if the prospect of recession sounds more likely than they predict already, and monetary policy will continue to be used to counter it. The rates are already talked down, the extreme pessimism already factored in. The fact that someone can fix for 2 years around 40bps cheaper than a variable rate (that is priced off a 1.0% cash rate), suggests extreme pessimism is already in those fixed rates. Do you think the market will start pricing on expectations of a sub-50bps cash rate soon?
Having said all this, I thought swap rates were getting close to bottoming out 2-3 months ago. Yeah got that wrong. Difference now is that there simply isn't much further to go - there have been signals that the RBA will stop pulling the monetary policy lever soon, definitely before going to zero.
Don't fix. Plus pay P & I.
IMHO The economy is stuffed. And the government is hell bent on a budget surplus, and so they won't contribute to saving it. Real Estate/apartment building boom has ended, and people are chasing returns in an overvalued share market. Export market is vulnerable too.Please explain why they should not fix it. If you reckon this because you think variable is likely to be cheaper than fixed for them over the next 2 years, please elaborate why, and demonstrate with some numbers (I.e. where you think rates will go) to illustrate.
Or do you think they shouldn't fix because the economy is so stuffed that they are likely to need to break it because of the higher chance they could lose their job?
If you are all in on your doomsday expectation, shouldn't they just sell up, buy gold, wait for property to really crash, and then buy back in cheaply?
Go to a mortgage broker to see if there may be some other options for you.
Make your own decision if you want to fix. If you believe it will save money over the fixed period then do what you think is best.There are quite a few options out there. I would suggest the first step is to speak to a your broker who did your loan originally. The broker will still be able to do a serviceability check(this is the ability to pay off the home loan which is what the lenders use to see if you can refinance or not) and see if there are any tier-1 or tier-2 lenders that you can use to refinance your loan. Another option available with the brokers is that they can get a loan pricing for you with your current lender.
This is assuming that your loan structure has been setup appropriately from the onset so as to maximize your tax deductions and allowing you to payoff your PPoR loan sooner.
Do you want surety in your monthly payments then lock it in? Otherwise a variable rate with an offset account is the best option.