Should I Fix Interest Rate on Home Loan with NAB? 2.19%

dammit on 10/08/2020 - 12:21

TL;DR - Should I fix now or take a punt rates will go lower through NAB in the near-future.

I have a P&I Owner Occupier loan through NAB, house value ~1.5m and loan owing 1.176m (LVR 78%) but have a lump sum in offset - meaning my net balance owing is $1,000,000.

I am currently variable paying 2.87% which was negotiated by my broker back in Feb.

NAB is currently advertising 2.19% fixed for 2 years. Their 1 year fixed is 2.29 and 3 year fixed is 2.29 as well; but the 2 year is the lowest. I can't really get any lower variable from them, maybe 0.1% if I beg them and threaten to leave.

I already pay them a $395 fee p.a. for my existing package so believe I can change to fixed without any new fees. I will save interest rate of 0.68%. On $1m this will save me $6,800 in interest a year. My repayment should go down about $100 a week. This is a substantial saving for me as my income is lower than previous, but equally I don't want to make a bad decision or save a few pennies if it means further future angst.

Is it a no-brainer to fix? Should I hold off and see what the economy is doing further?

I don't fully understand this, my broker tried to explain it to me - but the banks are accessing RBAs term funding facility giving them 0.25% for 3 year funding? So the govt is pumping money into the finance market and based on this, we are unlikely to see fixed rates go any lower, as there is no more margins to drop.

Further note: no need to suggest other lenders, I am 100% trapped with NAB. Due to a big drop in income and no longer having this property as an investment (recently switched to owner occupier) so rent is no longer taken into account, I now fail servicability everywhere in the amount of finance I need, so I cannot change lenders. Makes the choices simple, either stick with NAB variable or NAB fixed.

If I do go fixed, I do plan to do a split loan, so I can keep a portion variable to use the 100% offset, just in case I can get further ahead.

Poll Options

  • 49
    Fix asap 2 yr 2.19% - it's a no-brainer
  • 10
    Who knows what's going to happen - you're on your own!
  • 3
    Stay variable at 2.87% - rates will go lower
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Comments

  • capslock on 10/08/2020 - 12:24

    I don't think you'll be able to change to a fixed rate without serviceability.

    • jay9 on 10/08/2020 - 13:11
      +1

      They usually don't check serviceability for changing for variable to fixed.

    • dammit on 10/08/2020 - 13:27
      +1

      Yup I believe it is just lodging a form and you don't need a servicability test to stay on the same loan product, fixed option vs variable.

      • CyberMurning on 10/08/2020 - 16:44

        correct. just lodge a form no checks no chicks

  • Porker on 10/08/2020 - 12:42

    Not sure if you know, but with fixed loans, you can only pay of a certain amount of extra principle. Variable generally allows you to pay off lots of principle if you come into the money.

    With my last investment purchase, I did 50/50. 50 percent under fixed and 50 percent under variable. In hindsight, I would've liked variable because the offset associated with the variable is greater than the loan. I'm stuck paying the fixed interest.

    Your circumstances may be different though, so you'll need to review the income aspect yourself.

    In other fixed loan stories, I previously once fixed 100% of the loan at 4% and then rates went up to 9% so that was a win.

    Hard to say what'll work for you, but these rates are the lowest I've seen in my lifetime.

  • onetwothreefour on 10/08/2020 - 12:54

    I was on 2.84% variable with tictoc and swapped recently to 2.22% fixed. My situation is a little different to yours though as I only have $284k left on my loan and a fair bit in my offset so my interest payments are quite low.

  • Mikay89 on 10/08/2020 - 13:01
    +1

    Fix it, the chances of the big banks offering 2Y or 3Y fixed rates lower than this are not as high as the chance that the big banks will remove these low fixed rate options in the near future.
    Just be sure to pocket the savings in monthly repayments in your offset account.
    I did the same thing with CBA in May and never looked back, I didn't have an option to switch banks either due to negative equity so it was a no brainer for me.

    • dammit on 10/08/2020 - 13:28

      This is pretty much what I am thinking too, thanks for the advice!

  • paulpavs on 10/08/2020 - 13:01

    Does the NAB fixed loan offer an offset account? This will need to be taken into consideration as the interest you save by having the funds in the offset may "offset" the savings in changing to fixed. i.e. If your saving $7.5k in having the offset with a good balance you would be worse off changing to fixed with no offset account.

    Ideally if you could split the loan into fixed and variable (e.g. with the 70% as fixed and the 30% of the loan as variable with the offset), that way you can still utilise the offset and make extra payments but also have a fixed portion with a lower interest rate. Of course the actual % you would need to work out and assume how much extra you could save over the 2 years (may end up being 60/40 etc).

    Will interest rates get any lower is anybody's guess but you can make that determination based on the information at hand. As previously mentioned rates have never been so low…

    • dammit on 10/08/2020 - 13:29
      +1

      No it doesn't offer offset for the fixed, but I can split the loan % fixed and variable.

      I have $175k in offset at the moment. So I would just split the loan maybe $250k variable (in case I come across any other lump sum payments - unlikely in the next two years with employment etc); and the rest fixed. So the 2.87% variable part is pretty much all offset and can be a 'line of credit' as such; and the fixed part is on the lowest rate…

  • mortgagebroker on 10/08/2020 - 13:15

    Go talk to your broker.
    As mentioned, you can split your loan. Keep 200k as variable so you can still offset it.
    Have a think about what you want to do as it's your choice.

    • dammit on 10/08/2020 - 13:26

      Broker strongly advises me to fix, his view is that the big banks will not go any lower, even if rates cut. He thinks Australia will not end up in negative interest rates too. I wanted to sense check his advice against trusty ozbargain, to make sure other's agree. I'd hate to fix, and then in 6 months time variable rates being offered by NAB etc are 2%! (is it possible)!

      • Tyrx on 10/08/2020 - 19:05

        I agree with your broker - the only reason why the banks are offering fixed rates this low is due to a special deal with the RBA lending at 0.25%

        • CyberMurning on 10/08/2020 - 19:42

          What is this special deal….. Can you share some articles about it, ie the source?

          • Tyrx on 10/08/2020 - 22:49
            +1

            @CyberMurning: https://www.rba.gov.au/covid-19/

            Under the TFF, authorised deposit-taking institutions (ADIs) in total have access to at least $90 billion in funding from the Reserve Bank. The funding is for three years at a fixed interest rate of 0.25 per cent, which is substantially below ADIs' funding costs.

  • RM on 10/08/2020 - 13:29
    +3

    In addition to staying with NAB and fixing - atleast try to threaten them to leave. Let them waive some fees etc for you to stay, as some other banks are offering cashbacks.

    Now I know you can't move lenders - but they don't need to know that. See what you can get.

    • dammit on 10/08/2020 - 13:35

      Good tip, I certainly will!

  • saintpotter on 10/08/2020 - 13:44
    +1

    Don't forget to look at the comparison rate - over 4%. Comparison rate takes into account annual fee (which $395 is normal when looking at the big banks - $250 for Macquarie), but nevertheless high!

    If you can get no annual fee from a bank at a slightly higher rate - might be another option to consider.

    • dammit on 10/08/2020 - 14:17

      It's very expensive, I can't change to a different bank or product unfortunately.

    • conan2000 on 10/08/2020 - 14:29

      On the size of loan the OP has the comparison rate is pretty much meaningless. They are assumed to be on a loan of $150k from memory as it was the average home loan when the concept of comparison rate came about. The interest rate will have a far bigger bearing on a ~$1m loan than fees.

  • Skramit on 10/08/2020 - 15:33
    +2

    Hi OP,

    I was in your shoes about 2 months ago. I was on 2.79 Variable with my bank who were offering 2.19% fixed for 1,2 or 3 years. I decided it was worth the punt to save a few thousand on interest per year which is actually a bigger saving than it sounds as the saving will compound over the life of the loan. I split my loan roughly 75% fixed and 25% variable to keep my offset account as I like the flexibility.

    As you are coming from 2.86%, the RBA in combination with the banks would have to drop rates by over 1% for this decision to bite you in the bum. The RBA would effectively need to drop their rate to -0.75% from it's current +0.25% which my broker's opinion is this is very very unlikely. Even if the RBA did that, banks RARELY pass on the full wack the RBA drops by, so i simply cant see NAB every dropping sub 2% anytime soon.

    So if like me, you were weighing up whether or not taking the 2.19% locked for 2 years could really screw you over, I think the answer is simply - no. Even if NAB offered a new fixed rate sometime in the future, you're still way on 2.19% ahead of your variable 2.86% you're paying now. You have to always look at that as a win, not a "oh i shoulda waited" as you'll always be waiting. Unless NAB variable rates hit 2% or lower, you wont be screwed over. And worst case say NAB drops their variable rate to 2% by some miracle, that's only 0.19% under your fixed rate, hardly worth having a heart attack over in the bigger picture. And if you split your loan you would still be exposed to this new lower variable rate with the variable portion.

    The reason you fix now is hedging your bets that a) the rates wont go much lower, and b) if they rise you take full advantage. It's a calculated gamble but I think its worth it.

    BTW nothing in the world of mortgages is a 'no-brainer', you need to do your own research and make sure it's right for you. But in in this situation I would suggest doing it :)

    not financial advice, please see a professional

    • scallywagmcgee3 on 11/08/2020 - 09:19

      I am in the same position at the moment, currently on 2.77 looking to do the split loan to keep the offset. How long did you fix for? Do you now have 2 loans, one fixed, one variable? Also, what happens at the end of the fixed term? Does it roll back into one loan at the rate of the variable split (whatever that is at the time) or does the fixed portion stay separate at the advertised variable rate from the bank? Cheers.

      • Skramit on 11/08/2020 - 10:07
        +1

        I went with 2 years. Was tempted with 3 but thought 2 years was a touch smarter.

        Do you now have 2 loans, one fixed, one variable?

        Yes, in my online banking it appears as 2 separate loan accounts. Both earn separate interest and have separate repayments. But both fall under the one loan umbrella.

        Also, what happens at the end of the fixed term?

        I've been told it ALL reverts back to my existing negotiated discount rate of 2.79% (unless the variable rate has changed by then, hopefully lower!!). And it will become 1 loan account again.

        • scallywagmcgee3 on 11/08/2020 - 10:42

          That's good to hear, as long as it actually happens that way! One thing I was worried about was it could go back to their advertised rate. My thinking was that having the split portion still at 2.77% though would give me grounds to negotiate the other bit to be the same if that was the case though.

          I was also thinking 2 years could be the sweet spot. :)

          • Skramit on 11/08/2020 - 11:03
            +1

            @scallywagmcgee3: Banks aren’t that stupid any more. They know you can swap banks so easily so there’s little incentive to stick you back on 4% after the period ends and piss you off.

        • scallywagmcgee3 on 14/08/2020 - 12:56

          I just spoke to CBA (currently with them) and they advised me that even after the fixed period ends, I will still have 2 loans. They said if I want it to be 1 loan again I would need to do a refinance. Just an FYI for you :)

          • desparito on 14/08/2020 - 13:19

            @scallywagmcgee3: thats true… my fixed term with NAB ended and i still have 2 different loans but on same rate

          • Skramit on 14/08/2020 - 14:51

            @scallywagmcgee3: Ah there you go. Cheers.

            Either way its the same as 1 loan with 2 accounts after the fixed preiod. No biggie to re-combine them. Or take out a new fixed loan :)

  • netjock on 10/08/2020 - 15:44

    Fix for 1 year. 0.1% of a difference. If you owe them $1m you are talking about $1k difference to 2.19% plus at end of 1 year you still have options open. 2 year fixed for 0.1% lower rate not worth the risk.

    • dammit on 10/08/2020 - 21:27

      Rates might be higher at 1 year when it matures though…?

      • netjock on 11/08/2020 - 09:39

        And it might not. Who knows. You can only go for the best rate and best guess.

        What happens if in one year's time fixed rates stays the same and you fix it for 2 years at 2.19%.

        Depends on how you see this going. Is there going to be a sudden vaccine discovered? If there is a vaccine how long would it take to manufacture / distribute and inoculate a good proportion of the population.

  • CyberMurning on 10/08/2020 - 16:47

    at 2.1x % a friend said quick run and fix it for 5 years…..

    • netjock on 11/08/2020 - 09:42

      Depends on who your friend is. Staying on variable is definitely not the best at the moment.

      Fixing it at 2.29% / 2.19%. Depends on the term and people's outlook.

      • CyberMurning on 11/08/2020 - 10:42

        unfortunatelly 2.2x or lower is for owner occp
        usually investment will be at 2.4x and avobe, but still good comparing with investment variable, 3.2x%

        • netjock on 11/08/2020 - 13:37

          Depends on who your friend is

          Should they be dishing out financial advice? Also do forget early exit fees for fixed if you need to sell. It is a pandemic driven recession.

  • dammit on 10/08/2020 - 21:27

    31 fix 2.19% asap, vs 2 stay variable, wow, that's a really clear result!! thanks everyone :)

  • dammit on 15/08/2020 - 00:17

    Just an update to everyone -

    I am not going to fix, the 'blackboard' / standard rate for my product with NAB is about 4.1% but I have a lifetime 'discount' of -1.23% to drop it down to the 2.87%.

    If I took the 2.19% 2 year fixed, at the end of 2 years, I don't just go back to my already discounted -1.23% off their standard rates; but instead I revert back to their full rate.

    I feel it is too big a risk, especially given I can't refinance and move elsewhere; due to servicability failing, if I was to fix, then in 2 years the credit market got even harder, I might be stuck between a rock and a hard place with NAB unwilling to play ball in giving me a discounted rate.

    Anyhoo, I negotiated with them and got my variable down to 2.69% plus $395 cashback, which will now remain for the life of the loan (unless I fix or make some other big change).

    So I'm paying 2.69% instead of 2.19% fixed; 0.5% difference which is $5000 a year in interest, but at least if rates drop further I will get the savings (provided NAB passes it on!) and no surprises/risk at 2 years from now…

    Love to hear anyone's thoughts on this decision!

    • conan2000 on 15/08/2020 - 09:01

      Sounds reasonable, but a lot depends on how likely your income is to stay at the reduced level. If you think it will likely be extended then yes, absolutely don't want to be stuck at the rack rate of 4.1% interest!

      As you say, you're stuck with NAB at the moment, and at least you are now saving a bit, and this gives you flexibility moving forward. If your income does improve, I'd be looking as soon as that happens and see if you can get a better rate elsewhere, as even on variable there are much better options out there than 2.69% at the moment.

    • Garrettau on 15/08/2020 - 09:08

      Can you share how to negotiate to 2.69%? Mine is 2.84%

      • dammit on 17/08/2020 - 08:04

        Sure, I’m on the Nab choice package and apparently it allows you to have your rate reviewed at any time. I rang and told them I want to negotiate a lower rate.

        I was put through to the retentions team. I acted as though I’d done a massive amount of homework and recited several competitors with lower variable rates including UBank, Athena, tictoc, etc. I told them I’d rather stay with NAB but they really need to sharpen their rate.

        • CyberMurning on 17/08/2020 - 09:45

          dont forget ability to negotiate is depending on size of your loan if you have like $200k left they wont bother
          if $2M then yeah

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