Hi all,
I was wondering what the advice of mortgage brokers is at the moment with regards to interest rates and the variable / fixed debate?
I currently have a [very!] low fixed interest rate ending in Mar 08 and a LOC with a discounted variable rate, each of $250K. The threat of 2 more rises will hurt and does concern me: but what does the future hold?
I was wondering what people are doing at the moment: I am thinking of switching the fixed rate now to a 7 year fixed IO @ 7.89% and splitting the LOC into a fixed rate P&I and leaving a small amount floating just for flexibility. I know no-one has a crystal ball, but is 5 or 7 years too long to fix?
Any helpful suggestions or comments would be greatly appreciated!
Thank you,
Anzion.I recently read a study ( sorry can't quote it because I printed it out and gave it to a friend) which stated that in 83% of cases, people are worse off fixing their interest rates compared with those who stayed on a variable rate. The research was conducted over the last 7-10 years.
I would never fix for any more than a year as anything could happen after that. Who would ever have thought a year ago that the US would start cutting interest rates as it is doing now?
I've had properties for over 35 years and during that time I've had both fixed and variable. In the majority of cases I've been worse off using a fixed rate.
Hi Anzion
I think it may be worth the wait to let the fixed rate run its course however as the cost of an extra 0.25% I think would be more over 12 months than the cost to loose your lower rate for 4 months.Fix the LOC or set up another sub account if the funds are utilised. A line of credit fully drawn is just an interest only loan anyway.
For my opinion on rates is that I consider they are at the high end of the rate cycle and due to go down and would be wary of fixing beyond 3 years however like all the experts in this field there is a 50% chance of being right.
If all else fails toss a coin.
regard s
Craig
Many people now are choosing to split their loan both ways, which allows you to pay extra off still on the variable portion if the lender is one (in the minority now I think) who does not allow extra payments on fixed rate loans.
You can answer it yourself easily. SUre , you do have to consider your aversion to risk, but really, think of this…..
* What is the lowest interest rate you ever have seen in Australia? When and for how long?
* What is the interest rates now?
* DOes it apeear likely they will increase again (most suggest inevitable) and anothe 2 or 3 times before they level off, and eventually start their trip down again (if they ever do)?
In the best case scenario, you could not see them ever dropping less than a full 1% (100 basis points) below what they are now – essentially your worst case scenario – but what is the worst they could rise?
Really, more importantly is to consider how long you plan to have your property for. Is it likely you will move or choose to , or need to sell in the next few years? If so, locking in a fixed rate is not such a good idea. If not…..well, sounds like a good idea.
The rest is up to you. All the best.
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