Loan Splitting - The obvious choice?

• 

  Kinko82 on 23/05/2020 - 19:28

  +4

  That makes sense since you want the $100k loan to be fully offset by your $100k in cash.
  You also want to think about how much extra savings you'll have after repayment of the loans. That is, once your offset account starts building up above $100k, that money won't offset the loan anymore and since you want liquidity, you won't be paying extra into the fixed rate loan either, not to mention the limit of extra repayments fixed rate loans usually have (mostly are $10k per year).
  So consider increase the variable loan amount to give you room to offset your additional savings beyond the $100k cash you got.

  you can also look at banks that offer a 100% offset facility for fixed rate loans. This means you don't need to split it just have the one fixed rate loan with transactional offset account.

  Banks that have this are:
  Teacher's mutual bank (you can access this via their subsidiary of Unibank, Health Bank, Firefighter's Bank). Check their eligiblity. They got super sharp rates right now too on fix rates for investment and owner occ.
  Adelaide Bank
  ANZ bank on their 1 year fix rate product only
  Auswide

  • 

    billybrown on 23/05/2020 - 20:04

    +1

    Awesome, thanks a lot Kinko82, what you said makes a lot of sense. I will look into the other banks you mentioned.

• 

  p1 ama on 23/05/2020 - 23:27

  -1

  I'd be weary about fixing your rate at 2.5%. With the current economy as well as increasing levels of government debt, interest rates aren't really going up any time soon. In fact, have a look at when the last rate hike was. You want to fix your rates when you think they'll be going up. Obviously don't fix your rates when it's most likely they're going down.

  (Since I know I'm just another internet guy throwing around an opinion, for what it's worth, I'm an economist who was previously employed to model interest rates and cost of capital.)

  • 

    TheMindsetTraveller on 24/05/2020 - 07:49

    In your opinion, how low do you think rates can go though?

    I am of the layman's view that the rates are at bottom if not very close to it, so any rates with low 2's for owner occupier or low to mid 2's for investment loans to me, again layman's view, is quite good.

    • 

      p1 ama on 24/05/2020 - 13:25

      -1

      In your opinion, how low do you think rates can go though?

      Much lower. I wouldn't be surprised if the cash rate was potentially even cut to 0%. Nobody will be taking out loans, banks will compete to drive down margins and rates below 2% wouldn't surprise me.

      I am of the layman's view that the rates are at bottom if not very close to it, so any rates with low 2's for owner occupier or low to mid 2's for investment loans to me, again layman's view, is quite good.

      Just think about it for a second. Would the bank offer you 2.5% when the current variable rate is 3.3% unless they believed that the variable rate would fall below 2.5% at some point?

      If you want to gamble, that's fine, but that's exactly what a layman's view is. You've not done any modelling, forecasting or predictive analysis. You're taking a punt with a gut feeling, exactly the same as taking a punt on who's gonna win the Premiership this season. Nothing wrong with doing that, of course, but you'll likely lose in the long run.

      • 

        sweefu on 25/05/2020 - 13:04

        -1

        I thought the RBA had been quite clear that they won't be cutting rates again?

        https://www.afr.com/markets/debt-markets/reserve-bank-won-t-…

        • 

          p1 ama on 25/05/2020 - 18:05

          @sweefu: The RBA never said that, it's a guy from Montreal.

          Again, don't listen to me. Listen to the banks. Why would they offer to fix at 2.5% unless they believed rates will fall below 2.5%.

          Just ignore me. Who do you think knows better? You or the bank? Don't bet against the house.

          • 

            El-Rhi on 29/05/2020 - 06:46

            @p1 ama: Have you heard of the RBA term funding facility? Maybe look it up and you will understand the reason why fixed rates are so much lower than variable.