Fixed v Variable v Fixed/Variable

[Yossarian]

I've taken swing advice from this place so why don't you plan my financial future.

How do you all structure up your mortgage.

Being close to historic lows fixing for a few years at 3.99 seems hard to lose.

Thought, comments, queries.

[goughy]

I'd be interested to see what people do. In something like 15+ years of home ownership we've never been on anything other than variable...

[Daves]

3.99% is a 3 year term I am assuming?

It depends on what your comparable variable offers are? and what are the terms, fees etc. My daughter settles this week and got a 3.99% variable deal with full offset, auto redraw etc. The fixed comparable was about 4.25/4.30 I think. My advice to them was not to bother with fixed in their situation, as variable rates would have to rise by 100 points or more for them to break even over 3 years. RBA rates aren't likely to rise any time soon imo, if anything the next move will be down .

In the industry, the usual trigger for favoring fixed over variable is the yield curve bottoming out. I haven't looked (Perrygroves might be able to tell us) but suspect that bottom was a while ago now.

[Captain Nemo]

Thoughts, prob visit a mortgage broker, or have one come to you.
Comments, I've fixed both my home and investment properties at a pretty low rate.
Queries, none.

[Yossarian]

3.99% is a 3 year term I am assuming?

It depends on what your comparable variable offers are? and what are the terms, fees etc. My daughter settles this week and got a 3.99% variable deal with full offset, auto redraw etc. The fixed comparable was about 4.25/4.30 I think. My advice to them was not to bother with fixed in their situation, as variable rates would have to rise by 100 points or more for them to break even over 3 years. RBA rates aren't likely to rise any time soon imo, if anything the next move will be down .

In the industry, the usual trigger for favoring fixed over variable is the yield curve bottoming out. I haven't looked (Perrygroves might be able to tell us) but suspect that bottom was a while ago now.

Yes 3 year deal Daves.

Do you mind me asking what bank she went with, that is an amazing rate as the bigger lender have all jumped up 20 points or so this week.

Thanks for the breakeven number as well, I was just about to try and work that out!

[Daves]

Yes 3 year deal Daves.

Do you mind me asking what bank she went with, that is an amazing rate as the bigger lender have all jumped up 20 points or so this week.

Thanks for the breakeven number as well, I was just about to try and work that out!

ING Direct. An Aussie broker put them on to it.

https://www.campaigns.ingdirect.com.au/home-loans/sem?cid=ps:goo:bcl:msq&gclid=Cj0KEQjw-7GxBRCL_Kq6mZSHvdsBEiQA7r8VhOu60t7bTKnxQAe_TisJ42x B43wxfKrmylfNXGy9fbYaAnYr8P8HAQ

The break even is basically that variable rates have to rise by double the effective difference. This is somewhat simplistic and assumes straight line rises.

Also a correction, I said the Yield Curve bottoms, I should have said the Yield curve is inverse, which I gather happened about 6/8 months ago;

http://www.switzer.com.au/the-experts/raymond-chan/is-australias-inverted-yield-curve-signalling-recession/

As you can see, an inverse yield curve can also signal a recession.

[Yossarian]

Cheers, I think I grasp the meaning. So basically the time to fix was early this year. Riding the variable rate and refinancing is probably the better option.

[PerryGroves]

Jjj
3.99% is a 3 year term I am assuming?

It depends on what your comparable variable offers are? and what are the terms, fees etc. My daughter settles this week and got a 3.99% variable deal with full offset, auto redraw etc. The fixed comparable was about 4.25/4.30 I think. My advice to them was not to bother with fixed in their situation, as variable rates would have to rise by 100 points or more for them to break even over 3 years. RBA rates aren't likely to rise any time soon imo, if anything the next move will be down .

In the industry, the usual trigger for favoring fixed over variable is the yield curve bottoming out. I haven't looked (Perrygroves might be able to tell us) but suspect that bottom was a while ago now.

Yoss, you would be surprised how well people in the street are at determining the trajectory of rates. Like I always say, a bunch of talking head economists are no better at predicting rate cycles than a general sample of the population.

Daves break even calls are spot on and whilst the banks have slipped variable higher, I can't see anything in the economy for the next 12 months at least that would prompt the RBA to raise rates.

I think it's more important to secure a discount below variable and then not be afraid to change banks to keep securing a better bonus as your equity builds albeit P&I loans look like interest only for the first few years. A decent mortgage broker can be an asset.

Good luck, presume it's your first mortgage and always a gulp moment. It's crazy but if you have a secure job, you actually want the price of the house you eventually want to live in to go lower, so yours would as well.

[Yossarian]

Thanks for that PG.

It is our first loan and we (I) am lucky that my partner is a winner in terms of employment.
We have spoken to a few mortgage brokers and the one I think we are going to go with has got us about 40 points of the variable.

If we had a few more months we could have hit the 20% deposit mark and accessed the sub 4's but alas we found a place we both loved.

[markTHEblake]

I have always done it three ways. Fix a huge chunk and have a leftover on variable for offset and extra repayments and a LOC for emergency or cashflow.

I just recently refinanced to Suncorp, their deal was amazing, the pro package at 1.4%off and ~$370 annual fee waived for life. I think it's still available. It was the best deal out there by a country mile when I picked it up. ( I wouldn't go with a non bank lender)

[goughy]

what a shock, I'm lost :o

[kiwitown]

Yoss, everyone's situations are different, a 3 year fixed rate of 3.99% is very competitive. But look at the whole picture, does it allow you to make extra repayments over the fixed period, is there a monthly account keeping fee. Is there an offset account attached to the product. What percentage of deposit do you have to have to secure the rate.. If you like service from your lender, a lot of online deals offer very little support. Fixed rate products can help you budget better as you know what your repayment will be for the next 3 years. Just remember at the end of your fixed rate period you are going to roll out to a high variable rate so be proactive in looking for a better deal after 34 months. Will interest rates drop next Tuesday, I think they might now all the majors have raised there rates this week. Oh for a crystal ball.

Thought, comments, queries.[/QUOTE]

[goughy]

Why would the rba drop rates because the majors lifted there's? Would the majors then drop there's, back to what they were, and then do a 'see, we're the good guys'?

[kiwitown]

APRA are looking at the banks to secure their loan book for fear of a declining market. Hence the rise in rates.

It's only the big four that have moved so far. Your non bank lenders will be sitting tight till next week.

[Daves]

Why would the rba drop rates because the majors lifted there's? Would the majors then drop there's, back to what they were, and then do a 'see, we're the good guys'?

The RBA was always going to drop rates further, it was only a question of timing really. The Majors' rate increases will only hasten the move, not prompt it.

[kiwitown]

If the rba drops rates don't be suprised if some lenders don't pass on the full discount., this will help them cover not lifting the rates already.

[markTHEblake]

Why would the rba drop rates because the majors lifted there's? Would the majors then drop there's, back to what they were, and then do a 'see, we're the good guys'?

Standard Home loan interest rates are not directly linked to the RBA cash rate. over my lifetime banks have often changed interest rates above or below the RBA changes, but the idiotic media only reports when the banks change rates 'in their favour'. There has been plenty of times when the banks dropped rates when the RBA hasnt changed, or dropped them further, or otherwise did not pass on RBA increases.

History lesson ends

[goughy]

I knew they weren't linked. Wasn't it Keating who deregulated it all? I was just wondering why the banks lifting there's could trigger the rba to drop?

[PerryGroves]

In the Keating years banks funding costs because they borrowed very short term were directly linked to the RBA overnight cash rate and hence where 90 day bank bills were trading. Any move by the RBA to move rates lower also reduced bank funding, the old trick used to be dropping home loan rates the day after but making it effective two weeks forward.

Over the years and certainly since the GFC, regulators globally including APRA have demanded that banks increase the maturity profile of their borrowings, reduce their reliance on wholesale depositors and most recently improve their capital position.

All this is a good idea (how much is the question) but also comes at an enormous cost. As banks increase the maturity where they borrow money and compete hard for retail depositors, the RBA rate now has very little effect on their costs.

[PeteyD]

We are with ING and have been for a long time. Plenty of other advantages with their transaction accounts and low fees etc.

[goughy]

We're with westpac, but now that we'd have to go low docs wouldn't know if it's worth changing.

[Daves]

We're with westpac, but now that we'd have to go low docs wouldn't know if it's worth changing.

It doesn't cost anything other than your time to speak to a broker and find out what's available. I am assuming low doc because you are self employed?

[goughy]

Yup. When we moved Rob still had a job so hers was included, which got us over the line. Not that we plan on moving for the next 30 odd years, but still nice to be able to look around. Maybe the low docs options aren't as scary or difficult as I seem to remember them being (Rob's dad has had to deal with these issues in the past). I guess there's a lot more competition around these days.

[Daves]

Yup. When we moved Rob still had a job so hers was included, which got us over the line. Not that we plan on moving for the next 30 odd years, but still nice to be able to look around. Maybe the low docs options aren't as scary or difficult as I seem to remember them being (Rob's dad has had to deal with these issues in the past). I guess there's a lot more competition around these days.

Plus I assume you have more equity, which also helps.

[kiwitown]

Yup. When we moved Rob still had a job so hers was included, which got us over the line. Not that we plan on moving for the next 30 odd years, but still nice to be able to look around. Maybe the low docs options aren't as scary or difficult as I seem to remember them being (Rob's dad has had to deal with these issues in the past). I guess there's a lot more competition around these days.

Low docs are becoming harder to do as most lenders don't wont to be involved with them, If you want Pm me and I will give you an idea of what we offer for self employed home loans. this will give you guide to where you maybe at..

[AlexMc]

I fixed for 5 years 12 months ago - however in saying that we have access to redraw on the loan (not all banks offer that on fixed rates) and we have no intention on selling/moving in that time, therefore aren't likely to break the fixed rate.

I've been talking to my clients around the fact that rates aren't going to get much lower and that they need to think about their risk profile (how is a series of rate increases going to affect them) and match the debt structure with their intentions with the debt/asset. Majority have stuck with variable, however with last weeks rate increase there might be a few fixing towards the end of the year.

We probably could have got 40 points lower on our rate if we had of waited, however I'm happy enough with mid-4's for the next 4 years.

[jocker]

Fixing a loan is like buying insurance - only of value to people who are very risk averse.