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A good time to fix our home loan?
4.99% for 2 years

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#1 BookishOne

Posted 23 February 2013 - 04:32 PM

Just wondering whether people think that this would be a good time to fix our home loan rate - or if it would  be a bit premature.

We have a large-ish loan (more than I would like anyway!) and have negotiated our current rate of 5.61% with one of the big 4 banks. We are happy to stay with them and have no interest in re-financing. They are offering a fixed rate of 4.99% for two years, with the option to fix all or part of the loan.

My thinking is that 4.99% seems a really good deal and I can't see rates falling that low, and remaining that low for long. I calculated the difference over the two year period to be around $5000 if we remained at 5.61% compared to if we fixed (obviously I realise that rates are likely to move in the two year period so this is not entirely accurate, it was just to get an idea).

I would fix most of the loan, and leave a small amount variable (say 30,000) so that we could keep our offset account against this, as well as funneling any extra repayments, as well as the savings we make from fixing the rest of the loan, into the variable portion. This way we would not be in any danger of paying anything over the 'allowable' amount of extra repayments into the fixed portion of the loan.  

WDYT - Smart move? Or do you think the variable rate is likely to drop even further?

#2 LittleMissPink

Posted 23 February 2013 - 04:42 PM

From what my broker told me, if they are fixing that low, then the bank expect their variable rates to go lower at some point in that 2 years.

#3 relz28

Posted 24 February 2013 - 08:47 PM

Im just about to call the bank and lock mine in tomorrow!  Im at 5.6% at the moment and I think 4.99 is great and im thinking if they fall past that (which I doubt) then 2 yrs isn't long at all.  original.gif

#4 BookishOne

Posted 26 February 2013 - 08:11 AM

Thanks for your replies!

Relz28 - that is what I am thinking, yest it is a risk, but it is only for 2 years so it wouldn't be the end of the world if the rates dropped that low (which I also doubt will happen...)

#5 Therese

Posted 26 February 2013 - 08:16 AM

I think I would do it.

#6 Madnesscraves

Posted 26 February 2013 - 08:21 AM

I was considering this too, but I am also of the opinion if banks are offering low interest rates they do think it will fall below that.

Believe me, it's so tempting to fix my rates on that too for 2 years. I wouldn't mind some extra $$ back in my pockets. I would be saving a decent amount per month and it would be nice to have some luxuries back.

I'm really hoping that the variable does go lower, though, I am worried that banks are going to start refusing to lower the variables and only lower on fixed to encourage people to go fixed in the long term for their (banks) benefit.

#7 AllyK81

Posted 26 February 2013 - 08:22 AM

Finance is not my forte, but my husband is a financial analyst. His view is and has always been not to lock in rates.

He says they lock you in and almost always will offer something lower and reasons that why would they let you lock it in if they didn't think it was in their best interests?

#8 PrincessPeach

Posted 26 February 2013 - 08:39 AM

I wouldn't be locking it in at that rate just yet.

As one of the financial guru's said, the time to lock in the rates is the moment when the fixed rate has just crept above the variable rate.

Also I have recently seen commercial loan rates at 4.5% fixed, so the banks are projecting a massive cut in interest rates over the next few years. Commercial loans are normally higher than a home loan.

#9 SummerStar

Posted 02 March 2013 - 08:20 AM

I personally would do it at that rate. We are about to fix ours at a bit higher rate. Our reasoning is that we want to know how much we will be paying as a set amount for the next 2 years because our situation is changing slightly.
So for us that option suits just for the next two years.

#10 MrsLexiK

Posted 02 March 2013 - 08:31 AM

We're thinking of doing it because we like the security whilst I am on mat leave which will be for 1 yr but I most probably will then quit and start studying and/or working part time.  My thoughts is the banks won't drop the variable that much more but will probably move on the fixed a bit.

#11 roses99

Posted 02 March 2013 - 10:17 AM

Banks never lose. They set up the rates that way. So, over the longterm life of a loan, it is almost always better to have a variable loan and ride the ups and downs, than to fix.

That, of course, depends on your ability to be able to ride the ups and downs. If it's a large loan, and you need the financial security of knowing what your repayments will be, then it is worth doing.

#12 BetteBoop

Posted 02 March 2013 - 10:22 AM

QUOTE (AllyK81 @ 26/02/2013, 08:22 AM) <{POST_SNAPBACK}>
Finance is not my forte, but my husband is a financial analyst. His view is and has always been not to lock in rates.

He says they lock you in and almost always will offer something lower and reasons that why would they let you lock it in if they didn't think it was in their best interests?

Yes. They have highly trained financial analysts to give them advice on what to do with their fixed interest rates.

They would not offer a rate that is lower than the variable rate is predicted to be in that period of time.

Remember that the big four banks post billion dollar profits every year. They don't manage this by getting interest rate predictions wrong too often.

ETA: I don't like fixed rates if they come with fixed repayments and big exit fees. I understand some people like the predictability of repayments but if your circumstances change, these loans often lack flexibility. So I would personally want to consider what the terms and conditions of a fixed rate are before locking into one, based only on an attractive rate.

Edited by BetteBoop, 02 March 2013 - 10:24 AM.

#13 Mumma_G

Posted 02 March 2013 - 10:30 AM

We fixed our interest rate for 2 years just under a year ago because we knew I had one year left of uni and this would give us the security of knowing that our interest rates would not go up in that time. Our fixed interest rate is still lower than the variables I have seen advertised in our banks window and on their websites.

We used to be on variable but over a 4 year period the interest rate when from 8% to 4% so we paid a lot of our loan by simply maintaing our payment rate.So we got lucky. But what if it went the other way ... like it did in the 90's and interest rates went about 14% many people got caught out.

#14 Threelittleducks

Posted 02 March 2013 - 10:43 AM

I can't comment on whether or not to fix in at that rate.

But what I wanted to say was that our bank offers a fixed rate loan with a full off-set account. It seems unusual but we loved it. We fixed our rate around 6 years ago for a 3 year period and had an off-set account as well. We fixed as our stock broker's economist at the time was forecasting rates to rise. Rates did rise over that time and we did very well. Then our fixed rate expired just as the rate began to fall towards current levels.

We're now once again thinking about whether to fix again. It's a tough decision.

Good Luck

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