Home Loans (To fix or not to fix)

[HughDMan]

My home loan is coming up to renewal and we have over the last 9 years always fixed the rate which I believe has made us in front. I'm asking the psbers if you were to get a loan now or renew your loan what option would you take and why?. I've always fixed for the certainty fact, ie the repayment is the same during the fixed period.

Thanks in advance.

[Tones1982]

I've always fixed for the same reason as you. Repayments are always the same and it's easier to budget each month.

[shmoo]

when the fixed rate offers are above (sometimes significantly) the variable rate, I don't see why you would go for a fixed. The market has factored in rate rises in the near/medium term, so fixed rate offerings are not very attractive. IMHO - you've missed the boat on fixed rates.

[polonY]

I tend to read that variable is generally the better option for something as long term as a home loan, perhaps our resident mortgage broker could care to comment?

[agrid]

The banks know more than we do and always seem to come out in front. I fixed a loan a while back at 6% or something thinking "Suck on that you blood-sucking bankers, the rate will never drop lower". It did.

[shmoo]

The banks know more than we do and always seem to come out in front. I fixed a loan a while back at 6% or something thinking "Suck on that you blood-sucking bankers, the rate will never drop lower". It did.

I hate businesses that try and make money. It's so frustrating that we are forced to buy their products against our will.

[jules_1972]

https://www9.bankofamerica.com/home-.../fixed-rate.go

Wish we had these options available.......
Budget for next 30 years!!!
yay!!

[Harro]

Yeh I went half and half - fixed mine at 7.5% for 5 years 3 years ago - and its rarely, if ever been above that in that time.

Kicking myself as its cost me fair bit - but not as much as if i had fixed the entire loan.

[out_in_front]

Never fixed - never will - lets put it this way, when the banks set their fixed rates they have a heap of economists working on the rate to make sure they NEVER lose out, it will always cost more to fix it. The only time it is worth it is when you cannot afford to go over a certain amount, and you lock it in early. It will save you paying that maximum, but you will also be worse off in the long term.

[TheRush]

Depends on the property - if it's you're residence then I wouldn't fix.

For an investment it just makes the sums easier and you know what the outlay is every month...

I got my investment loan fixed at 4.85 just over a year ago and it's for 3 years - think I came out ahead there

[Homie]

Depends on your situation but the people are right the banks have hiked up fixed rates & want you to lock in so you cant make to much extra payments with out cost??

check out the difference between the Fixed & Var some time you could get 4-5 rate rise .25% before you at the same as the fixed rate so if you leave it Var & pay the same payments as the fixed rate( which you were going to pay anyway set up D/Debit) you will be further ahead than you would be if you had fixed it??

[HughDMan]

The reason why I have fixed in the past is because the fixed rate was always lower than the variable. (for 1-3 years anyway). The only negatives I see are
a. The rate goes down.
b. You can't make a big repayment (extra)
c. Penalties if you break the contract.

The pluses I see are
a. The rate goes up.
b. The rate goes up more.

I spose it just boils down to what I think will happen to the rate over the next few years,

[thro]

typically the fixed rate is some way above the variable rate.

By the time rates go up above your "fixed" rate, typically your fixing period is over.

To come out in front break even, you need to have rates go up by say 2 percent by say halfway through your fixing period.

Aaand... thats not counting the larger amount of principal you have paid off earlier from the lower rate you get by having variable.

Don't forget that - while you're paying off 1% higher on your fixed rate, for the same money, you're paying off 1% less of your loan per month. And that is money that will continue to accrue interest for the life of your loan.

The savings simply are not there.



The banks aren't stupid, and they typically don't let you fix your rate at a low enough rate that you will win.

They simply rely on people's fear of interest rate rises....


You're better off going variable, and paying off the 1% extra into your loan anyway (i.e., get ahead) - that way you get more of the principal gone and have lower repayments forever more, and can also benefit if the rates go DOWN.

You don't need to make a lot more than your minimum repayment to take a shitload off your loan - the vast majority of your early repayments in particular are interest, so anything over and above that is a huge percentage of extra principal paid off per dollar spent...

(i am not a lender, but I understand exponential functions)

[agrid]

I'm resigned to the fact that what I think and what the army of highly educated economists and risk assessors employed by the banks are two different things. If the bank appears to be doing me a favour, they are not. Even something as unpredictable as 9/11 had minimal effect on interest rates. The GFC was of course very predictable as shown in Nicolas Taleb's 2007 book about predicting rare events, "The Black Swan".

[JiggyJigs]

I'm not a huge fan of fixed rates due to factors listed above...however Westpac's 6.99% for three years (on Prem Package) is pretty tasty.

Disclaimer: I'm technically employed by Westpac, I did however have my last day on Friday so take this with a pinch of salt if you like.

[Nudge]

I think choice did a review some time ago and researched the variable v fixed loan method and who did best over the last ten years. the result was that the variable came out in front in that 10 year period.

Check and read your loan documentation. Understand the mechanisms in it and also understand that those mechanisms favour the wheel and not the rat in it. Thats you btw. oh and me as well. Not all loans are equal and not all finance institutions are complete and utter utter utter utter utter utter bastards.

worked with a girl who with bf fixed their loan several years ago. she was quite distraught when rates kept going down and she was stuck @ 7%

[polonY]

I'm resigned to the fact that what I think and what the army of highly educated economists and risk assessors employed by the banks are two different things. If the bank appears to be doing me a favour, they are not. Even something as unpredictable as 9/11 had minimal effect on interest rates. The GFC was of course very predictable as shown in Nicolas Taleb's 2007 book about predicting rare events, "The Black Swan".

Not true. A bank will often do you a favour if it means that they will get your business instead of someone else. That's the whole idea behind these low rate if you transfer your balance credit cards. They might just screw you later on in the T&C but not always.

Note that I use the term screw loosely as I believe that anyone who is screwed by T&C that are readily available deserve it.

[agrid]

Yeah, that's why I said "appears" to be doing you a favour.

[Ev]

Even when you read the supposedly "free" market correctly, the American/Australian Governments will interfere with bank bailouts, subsidies taxation changes etc with no concern for a small investors/borrowers who read the play correctly, quickly changing your guided decision bad. I wish we could make them stop...

Sorry I can't help further

[thro]

The GFC was of course very predictable as shown in Nicolas Taleb's 2007 book about predicting rare events, "The Black Swan".

And by schiff in "crash proof" in 2006.

So predictable, the cynic in me says it was engineered deliberately. I mean out of those (big players) who "fucked up", who got burnt? No one, they got bailed out by the government (read: taxpayer, the little guy), handed a golden parachute, and had spent the previous couple of decades investing other people's money at great risk with no downside to themselves.

Fund goes down, no profit for the fund, no profit for the shareholders, but no detriment to the fund manager. Fund goes up, he scoops his 10% or whatever.