Refinancing Which to Choose Variable Rate Fixed Rate

boostpak on 16/10/2020 - 15:45

Those that are about to or planning to refinance what sort of loan did you go for with regards to fixed or variable? Did you go a split instead, if so what ratio split and why?

With the possibility of RBA cutting rates soon, has this influenced your decision? Fixed rates are now lower than variable as banks are desperate to lock in customers.

Do you think there's not that much room for rates to go lower since they are at all time lows, so the low fixed options are really a good option at this point?

Obviously every situation is different for what type of loan you choose and just want to know your general thoughts.

Financial Home Loan Loan

Comments

  • Mechz on 16/10/2020 - 15:47
    +1

    Unless they're at zero, there's always lower.

    • whooah1979 on 16/10/2020 - 16:21
      +2

      There is always the possibility of negative rate like in Japan, Switzerland and Denmark.

      • [Deactivated] on 16/10/2020 - 16:52
        +1

        That's the central bank. Consumers purchasing homes will see lower rates as a result, but not negative as banks still need to make margin to operate.

        • whooah1979 on 16/10/2020 - 16:56

          The thing about negative interest rate is that if you keep your money in there the bank will take it away from you.

          • [Deactivated] on 16/10/2020 - 17:08

            @whooah1979: OP is talking about borrowing money from the bank as a consumer and to suggest that OP could possibly get a negative interest rate is not practical nor is it likely.

            Your point is irrelevant as OP is not asking about depositing funds/nor is OP a bank with funds in a national central bank account

            • whooah1979 on 16/10/2020 - 17:25
              -1

              @[Deactivated]:

              With the possibility of RBA cutting rates soon, has this influenced your decision?

              OP asked with the possibility for the RBA to cut the cash rate lower than it is now for which I replied that it could go down to a negative rate.

              The current cash rate is at 0.25%. I would wait for ZERO or lower.

        • justdigi on 16/10/2020 - 19:14
          +2

          Not true, Jyske Bank in Denmark has offered -0.5% for a year now. You pay back less thank you owe, fixed for 10 years.

  • redfox1200 on 16/10/2020 - 16:20
    +3

    variable for what you can offset during the fixed period

    fixed for the remainder

  • brendanq on 16/10/2020 - 16:57

    Recently refinanced. Went through lendi.com.au - recommend but be prepared for quite a few hours of ID verification, filling out documents, etc. But I got a really good variable rate for an investment property - about 0.6% less than what I had with ING.

    • boostpak on 16/10/2020 - 17:29

      What rate did you get with lendi? Why did you opt for full variable in the end

  • [Deactivated] on 16/10/2020 - 16:59
    -1

    You need to look at your personal situation everyone has different needs. All I can say is if they are offering lower fixed rates vs variable it is likely because they are predicting rates to go even lower in the future than they are today.

    • boostpak on 16/10/2020 - 17:29

      @Trojanhorse77 Realistically how much lower can they go? Banks actually have to pass on these cuts (sometimes banks don't always pass on rate cuts).
      There is already quite a gap between variable rates compared with fixed, so even another cut presumed banks pass it onto customers, doesn't move the needle much for variable rates. But who knows

      • whooah1979 on 16/10/2020 - 17:50

        People aren't spend enough money. How can they when so many are out of work? The RBA have no choice but to lower the cash rate in hope that people open their wallets and perhaps buy that Xmas present.

  • SelfMade on 16/10/2020 - 17:50

    I recently refinanced, split the mortgage…large portion was fixed for 1 year at a lower rate. Rest was variable with offset account (have funds that fully offset this, so the rate didn't matter).
    I fixed for 1 year only as then I can re-assess the situation after the year…I didn't fix for longer as a lot can change in a few years.

  • onetwothreefour on 16/10/2020 - 19:12

    I took the risk and fixed my loan recently for 3 years. With the amount I owe minus the money I have in my offset I'm only paying interest on less than $100k so any drops in rates wouldn't have affected me too much anyway.

  • od810 on 16/10/2020 - 21:22

    if you are willing to refinance every year to get cashback, stay Variable. The gap between variable & fixed is about 0.4-0.6%, i don't think variable rate will catch up that gap in 2 years. So 2 years fixed is good.

  • avoidfullprice on 17/10/2020 - 09:14

    Fixed rates come with fees - typically you do it for better cashflow for a number of years before reverting to variable.

    The fixed term rate, as i learn from ABC finance, is influenced by the long term bond rate and not purely "banks are desperate to lock in customers.". The variable is influenced by the 90 day bill swap rate. RBA monetary measures are making the long term bond rate low, and so the fixed loan rate is low.

    I refinanced to variable because I am opting for less overall interest and fees, then making me feel good about having a 1.98% loan for 1 year only to pay $495 up front fee.

    This is not financial advice.YMMV

  • footyboy on 17/10/2020 - 12:52

    Broker here.

    No advice, just a few pointers.

    1/ Some lenders allow 100% offset against fixed loans, fixed loan being lower than big 4 rates.

    2/ Don't fix 100% of the loan if you can 'overpay' by more than $10k p.a. as most lenders will penalise you

    3/ If you are still undecided, just 'split' the loan and have a portion of each.

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