Investment Loan Packages - Variable or Fixed during COVID-19 Pandemic?

K-Daddy on 29/03/2020 - 11:15

Hi OzBargainers,

My wife and I will need to settle an investment apartment near Surfer Paradise, QLD which we signed from an off-the-plan contract in 2018 with a 5% Rental Guarantee from the developer. The settlement will be next month (April). We lodged our loan application with Westpac in March and it’s the best rate we had at the time with 2 years P&I Investment Loan fixed 3.09% @LVR >80%. The loan was subject to valuation for final approval and the valuation came back matching with the purchase price.

However, the Covid-19 situation escalated quickly led to drops in interest rate. We checked with our broker that we can change our mind in term of loan types & package before our final approval next week. Current offers we received from Westpac are as below (all LVR>80% and Investment Loan):

  1. P&I 2 Years Fix @2.59%
  2. Interest Only 2 Years Fix @2.79%
  3. P&I Variable @3.09%
  4. Interest Only Variable @3.29%

All the offers will come with $2000 cashback. At this stage, I’m not keen to have P&I Loans because I need to save up for my cashflow and deposit for my first home. Rental income we can be rest assured with 5% guarantee (probably enough to cover mortgage interest only and other expense).

Which Interest Only loan should we pursue based on the current situation (Fix or Variable) given we are planning to buy a house to live in within the next 2 years? And reason behind your choice if possible.

TIA

Poll Options

  • 2
    Interest Only 2 Years Fix @2.79
  • 7
    Interest Only Variable @3.29
Financial

Comments

  • serpserpserp on 29/03/2020 - 11:25
    +4

    The cheapest one.

    Seriously not sure why you need to ask.

  • Euphemistic on 29/03/2020 - 11:34
    +2

    I’d say it can’t go much lower. Fix for now. If it does get s bit lower you won’t lose out on much anyway.

    (I’m not qualified to give financial advice)

  • chumlee on 29/03/2020 - 17:39

    Contract for 5% rental income guarantee have terms & conditions?

  • p1 ama on 29/03/2020 - 18:47

    Variable unless you feel like betting against the bank (which is exactly what fixed is).

    I did the statistical analysis on this a few years back when I was in uni. On average, if you fix, you're worse off. You might be better off with fixing if (1) you're lucky, or (2) you have a better model of future rates than the banks.

    • Ocker on 29/03/2020 - 19:24

      Banks do not dictate future rates, rather they react to supply and demand from borrowers and lenders of funds

      • p1 ama on 29/03/2020 - 22:14
        -1

        Never said they did, but the rate they offer you for the fix is going to be higher than what they believe the expected rate over the life of the loan is going to be. So if you go for a fixed loan, you're basically saying to the bank that you think your model is better than theirs. I used to work in macroeconomic modelling and forecasting rates - it's, on average, better for you to go with variable loans.

  • kronicmacstigator on 29/03/2020 - 19:53
    +4

    BACK THE F**K OUT NOW!!! RUN RUN RUN!!!

    I've studied the Surfers property market for years and years and years. Unless you can rent that sucker out as a holiday rental (and are prepared to pay the high cleaning/management fees) or manage it yourself. RUN FOR THE HILLS!

    Either someone lives in it, realises how shit it actually is (the novelty wears off DAMN QUICK!) due to all the noise 24/7 then pisses off or you get a new tenant every six months.

    There are apartments in Surfers that have not appreciated one cent (I'd easily estimate 20% have LOST value significantly vs purchase price) in 20 years.

    You would be making the developer rich and not yourself!

    If you want an investment the growth corridor between Beenleigh and the northern tip (Helensvale up) is the new growth area. South past Robina to the border and out west into the hinterland.

    I could NOT think of a worse investment right now than buying into Surfers UNLESS you are buying a fire sale property/foreclosed which WILL pop up in the next 6-12 months at half of market value.

    Believe me, no one is going to be able to pay the large rents in Surfers, there will be a glut and a massive correction in the housing market now people can't pay their mortgage and they get sent to collections/foreclosed and the tourist market will easily take 2-3 to 5 years to recover fully.

    If you absolutely, positively HAVE TO buy a property I'd be looking slightly north to Southport. I'd be looking at buying a run down house with full blown tower development rights with intent to landbank it and develop in 20 years.

    (I realise I WILL get massive downvotes for all of this but I've studied it for years on and off, long story…)

    • [Deactivated] on 29/03/2020 - 20:31
      +2

      But its surfers bruh, hang ten

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