Hi all,
Recent homebuyer with $816k in loan at 80% LVR with TicToc. Currently on 3.59% variable but want to make sure we're not hitting 6-7% in next 12 months or so. Can service to loan but would like to add as much into offset possible.
Question: Is it better to fix now at 4.59% 1 year or 3 Year 5.09% or wait at variable rate? Welcome your points in discussion, I have offer valid until Friday from them.
Delusional republican please go home.
Recent homebuyer with 816k in loan at 80%
(Profanity) that.
I'd lock it in now, but even then a year later the rate shock will be intense when it hits the 6-7's
thats like $52k a year in interest alone!
or
B sell up and buy back in 12 months when we've gone backwards 15%
Selling now would be losing most equity…
How so?
Stamp duty alone makes this sound crazy. Add in capital gains (if this applies), a year of rent plus moving costs and real estate fees. Yeah nah
@Hardlyworkin: this, Stamp duty, selling cost and reduced sales price - not likely to have capital gains …
Recent homebuyer with 816k in loan at 80% LVR with TicToc
I hope your income is at least around the average OzB's at ~$250K…..
275k now, we all got 10% pay rises
Rest assured as a student whos HECS just got indexed at 3.9%, my income is well into the negatives - keeping the average nice and low.
You had to pay interest (at CPI) on a loan? Say it isn't so!
3.69%…..Glad i am still paying 2% for another 2 years Fixed. Hope it doesn't spike to 5 % straight after 2 years.
how much can u add to ur offset in 3 years?
do that % as variable, and the rest fixed for 3 years at 5.09.
or do 50/50 either way u win a bit lose a bit
Might have to move within the 3 years. Renting would be issue with PPOR loan fixed?
The numbers vary massively depending on how much you can pay and what interest rates wind up being, there's no good answer.
For example (and I did these numbers quickly in Excel, whatever you do, do not rely on them for anything). Let's say you can pay $5k a month on a $800k loan. If interest rates go to 6%, you'll be 10k worse off having locked in at 4.59 for one year than two years at 6% vs just being 5.09% the whole time. If they hit 7% that jumps out to $27k because you'd be barely servicing the loan anymore.
But if you go fixed for 4.59% for a year then they're 4% for the two years after, you're about $20k better off than 5.09%.
The numbers change all over the place based on how much you're paying and when the interest rates change. It's an absolute gamble, how much risk are you willing to take vs how much will you beat yourself up (or risk losing your home) by not having locked in a great price?
The one thing I can say is pay down the capital as quickly as humanly possible. If rates go down, at worst you have a smaller loan and skipped a holiday or two. If rates go up, it provides far more protection than fixing the rate ever will.
I second this strongly.
It's futile to guess where interest rate will be so pick one that suits your financial circumstances, OP.
My personal experience (not necessarily yours) is I am now wary of fixing more than 2 years. I erroneously fixed my loan in 2018 to around 3.9% for 3 years. As people enjoyed 2-3% rate during Covid, I paid the higher rate. Never again.
Thanks. Yes planning on paying down as much as we can. Fixing would give me peace of mind at same rate for planning. Don’t want to see 8% next year…
"Don’t want to see 8% next year"
That was my same thought when I fixed mine at 3.9%, expecting rates to jump to 5-6% at that time. Covid changed everything.
I won't try to guess where interest rates will be. The suggestion to pay down principal quickly is sound advice.
thanks much
If you know for the next 3 year you won’t be needing to get rid of the loan fix for 3 years and don’t look at interest rates for the next 3 years. Anything can happen.
I am tempted- however what happens if we move and need to rent the place? Breakage might cost a lot to switch to investment loan….
No need to tell your bank mate. The only time for breakage fees is if you need to sell.
Do they not know? Can you still negative gear?
@MadMax0211: The bank won't know until you inform them.
For Negative Gearing, you need evidence you are renting out the place (including from when you started advertising it), which is usually rental statements. The rates you are getting with the bank is not the ATO's concern.
@ddhar: Depending which bank you’re with they might know when you list your property for rent on realestate.com as they get daily alerts related to loan collateral they have on book
Agree, no need to tell the bank anything. From their perspective, you're still paying your fixed obligations whether you're living there or not. Many years ago, I took out a PPOR loan and then moved out a few years later and rented it out for 10 years without ever telling the bank - at the time, it never crossed my mind to tell them.
It was all above board and reconciled with the ATO who only care if you include the rental receipts in your tax return, not the type of loan you have.
Wait until the outcome of the RBA meeting tomorrow to see what they hike the cash rate. This will influence your decision.
say that they slow down their increase would be a signal …
Is it better to fix now at 4.59% 1 year…
If you think the interest rate will jump by 1.5% in 1 year, then you will likely be in better position. Otherwise you lose out on fees.
Your interest rate will default back to 6-7% when you come off the fixed rate. You are guaranteed to pay another set of fees to bring that rate lower.
Anyone who knows the correct answer with a great deal of certainty wouldn't be wasting their time penny pinching on ozbargain. They'd be making a fortune on the markets.
RIP to 800k loan
Average loan these days for a <30 year old unless you had some sort of support. Australian house market is ridiculous
yeah, average price in melbourne $1m and 20% down ….
Outside of the extraordinarily low fixed rates experienced during COVID, which were a once in a lifetime opportunity and subsidised by the RBA, you are almost always going to pay more under a fixed rate compared to variable.
Most borrowers who fix don’t try to beat the bank, rather they place a premium on certainty of repayments (i.e., they sleep better at night knowing their payments are fixed for x years).
If the bank loaned you >$800k on a >$1 million house, you must have a high salary (>$100k). This means you can afford extra repayments above the minimum repayments. But extra repayments are capped at about $10k/year on a fixed rate mortgage. Better to go with variable rate in my opinion. The faster you pay back the principal, the less interest you will pay overall. Over 20 years, you could save hundreds of thousands of dollars in interest.
extra payments are going to offset account. Definitely paying off as fast as possible.
I'm not sure it has the same effect. Offset account reduces your interest rate, but doesn't reduce your principal. You'd have to to some very fine calculations to work out whether you'll be better off in the long-term with an offset account.
Offset account reduces your interest rate, but doesn't reduce your principal.
What? It effectively reduces the principal, while allowing you to still use the money if needed.
If op has an $800k loan, but $200k in the offset account, he will only be paying interest in $600k.
Hey Op
Those rates aren't great. If you definitely want to fix, have a look at other lenders or speak to a broker
That's about as good as you'll get with fixed interest rates. Banks are assuming that interest rates are going to continue to climb.
Incorrect- there are better rates available although rates are climbing
I've got access to 4.93% for 2-5 years fixed with one small lender and 4.99% 4 years with another
Spoke to a broker today - they could only offer higher fixed rates than Tictoc unfortunately.
thanks. thought might be too late given RBA rate increase today …
Why? Fixed rates aren’t going to increase by 50bps if the variable rate increases by that amount. Fixed rates are priced off longer term bond rates which already have todays rise built in
Thanks, any good one to recommend?
CBA is at 4.99% 4yrs
Reach out if you need a hand, otherwise you can try and apply direct with the bank if you have the time
@MadMax0211: Offset accounts on fixed loans are very rare. There are a couple of lenders who offer this but rates aren't great
It sounds like you are in some financial pain with an uncertain risk that will put you into more pain.
Usual scenario and the only right exit is to reduce your exposure to the risk.
Fix the rate if you can afford the repayment and sleep well. Plan well ahead before the new terms expires.
If I was in this scenario I would sell to completely remove the exposure to the risk (even at a loss) and waited on the sideline until RBA starts CUTTING rates
If RBA just stops - it won't be a cowbell to start buying as we might end with "Arthur Burns' case" and stagflation which will see house price halved in price at the end of it.
Why would the RBA start cutting rates if the US Fed don't? The RBA doesn't do anything except follow the USA lead.
How could you give this advice without knowing what OP's income or assets are?
They could be on 500k a year with 500k in shares for all you know.
Your home loan amount is not a good indicator of your financial position without considering income, debt and assets.
Someone with a 1m mortgage and 250k income might be better off than someone with a 60k income and a 400k mortgage.
So which way did you go OP?
payless69 on 05/09/2022 - 16:10 Comment score below threshold.