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Fixed, variable or split interest rate on mortgage?


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#1 Tayto2

Posted 20 March 2017 - 04:05 PM

I'm a bit out of the loop on the intricacies of finance so was wondering if anyone has an opinion - in the current climate, would you fix, vary or split your interest rate?

We are considering renegotiating our home loan, it's currently fixed and wondering whether to change that.

It's a 300k-ish loan at 4.3% and we pay a bit extra into it each week and more when we can.

TIA!

#2 Perpetual Sound

Posted 20 March 2017 - 04:28 PM

We have split ours. Fixed all except for $10 000 so that if needed we could get a top up on that amount. It also means that we could redraw extra repayments if we need to.

Fixed the majority as these awesome current interest rates wont last forever and its unlikely that we will be able to pay back more than the $10k limit per year. If we do happen to be able to throw money at the fixed portion and somehow reach that $10k limit, we can then start putting any extra into our interest offset account.

#3 Veritas Vinum Arte

Posted 20 March 2017 - 05:04 PM

We have always done a split of fixed and variable and the split dependent on our situation at the time (could we survive large rate hikes).

So I think we're were 80/20 fixed variable for 5 years, then 40/60 (as we knew we would have more cash sitting in offset account for longer periods) fixed variable for another 5yrs.

So it is all down to personal circumstances. Often the fixed rates are higher so you are "paying" for certainty.

I periodically check out how we are going (if we had variable all) and over 5yrs there has only been about a $5k variation for us. Sometimes we were ahead, sometimes behind.

Edited by Veritas Vinum Arte, 20 March 2017 - 05:09 PM.


#4 SeaPrincess

Posted 24 March 2017 - 07:49 AM

Ours is split at the moment, approx 90% is fixed at lower than the variable rate.

Personal circumstances come into it, but we split for 2 main reasons:
- Certainty of payments, while retaining a portion for paying extra but with the ability to redraw. We are saving for a big overseas holiday, so I have already drawn out the fares, but we still have a significant overpayment available to redraw.
- Rate. When we fixed, the bank offered us a very good rate, better than the variable, which is not always the case. Our variable rate on the package is also extremely good.

#5 MrsLexiK

Posted 24 March 2017 - 07:59 AM

Ours is straight fixed with starting a new business and two youngens I have preferred just knowing what the price is and being able to budget. We are due to come off our fixed rate this year and will have a very large amount to put against it. We will likely do variable with an offset as I predict we will be able to pay off the remaining within 24 months but if need be we would be able to access the offset.

#6 nasty roses

Posted 24 March 2017 - 08:17 AM

Over the long term, I think you'd always win out with a variable. Ours has been fixed for short periods at various times. But overall, variable has worked for us.

That said, our repayments are relatively low. If money was tight to the extent that I was worried about interest rate rises, I'd fix.

#7 Tayto2

Posted 24 March 2017 - 08:20 AM

Thanks so much, its really handy to hear what others do. We have a meeting with the bank next week, depending on fees etc am thinking a split with the majority fixed for a couple years - plus an offset account- will work for us. We have a sum of money that we'd like to use against the loan but also want it flexible if we need it for deposit on new house or similar (we are likely to buy somewhere else in 2 years).

#8 MadnessCraves

Posted 24 March 2017 - 08:46 AM

we've been variable for all our home loans, but then again we've been really lucky with the time we bought and the rates since 2008.

I think variable usually wins out in the end, but I completely get if you need a set number so you can budget against that. It depends on how flexible your spare income is. We have a good buffer of savings, so we haven't looked at locking the rate in at all.

#9 Gossipgirl22

Posted 24 March 2017 - 09:21 AM

Always variable, with offset. Worked best for us, even when interest was high. Paid extra each week.

#10 ApplesandOranges4u

Posted 24 March 2017 - 09:28 AM

Right now variable is the way to go. Rates are low so you can pay extra if you are able to and overtime it's better. Split it if there is talk of them going up so you always have a portion you can pay extra into or redraw from.

#11 BungyBaby

Posted 24 March 2017 - 09:29 AM

What large financial events do you expect over the next several years?

You said you would like to buy again within a couple of years, if you have a fixed interest component you will have to pay break costs whereas you do not for variable.

If you expect a large increase in income (starting work from study or kids no longer going to day care) where you would be able to pay a lot more on your mortgage then variable is attractive as there is no limits for extra repayments.

If you expect a large drop in income (planning for another bub), then freezing your repayment amounts for financial certainty is attractive.

There is not a large gap between fixed and variable rates indicating the banks do not expect the rates will change much over the next few years, it comes down to how much financial certainty you need.

#12 LuckyMummy ♥♥

Posted 24 March 2017 - 09:34 AM

Ours is 80% fixed and our fixed interest rate is less than our variable portion. Do it was a good deal. We are fixed for 3 years but will probably fix it again once it expires.

Our mortgage is very huge by most people's standards therefore even a tiny interest rate hike would be a huge extra cost. So we fixed for certainty. Especially while or kids are young and I'm not working full time.

We kept some variable for a redraw facility and so we can pay off extra if we wanted. (Our fixed portion is limited in what you can pay off extra and doesn't have a redraw)

inthink long term variable is cheaper. But it depends if you value certainty over interest savings and what sort of fixed interest rate you get.

#13 Veritas Vinum Arte

Posted 24 March 2017 - 09:56 AM

Actually not all fixed loans have break costs if you purchase again. When we fixed for the second (and third) time for 5yrs we double checked the documents which said we could asset substitute without break costs.

Ow we have made the decision to extend so we will be staying and won't need to check the fine print for that in the future.



#14 Tayto2

Posted 24 March 2017 - 10:29 AM

View PostBungyBaby, on 24 March 2017 - 09:29 AM, said:

What large financial events do you expect over the next several years?

You said you would like to buy again within a couple of years, if you have a fixed interest component you will have to pay break costs whereas you do not for variable.

If you expect a large increase in income (starting work from study or kids no longer going to day care) where you would be able to pay a lot more on your mortgage then variable is attractive as there is no limits for extra repayments.

If you expect a large drop in income (planning for another bub), then freezing your repayment amounts for financial certainty is attractive.

There is not a large gap between fixed and variable rates indicating the banks do not expect the rates will change much over the next few years, it comes down to how much financial certainty you need.

Man this stuff confuses me! And I am actually an intelligent person (most of the time haha)

So we will likely move to a longer term location in 2 or so years. Most likely will sell our current house but the selling market here isn't great so if keeping and renting it is better (and we can afford to) we would like that as an option.

We like our bank and would likely stay with them for the next house.

It's not so much the certainty of repayments. The reason I'm thinking fixed is because it seems (on my limited understanding!) that rates are only going to go up now. But I also know the banks have a lot of resources in predicting such things and will ensure they "win". So perhaps I shouldn't try to play with them!

My income is likely to go up over the next year as I pick up more work as dd2 (3 mths) gets older and starts childcare. So was thinking we could put any extra money (if we have it) into the offset, along with the modest lump sum (inherited) that we have now.

Thanks again for all of your help!

#15 LuckyMummy ♥♥

Posted 24 March 2017 - 11:07 AM

Sounds like variable rate might be better if you plan to move again in 2 years. Or a short term fixed rate if you're really worried. Also $300k isn't a huge loan by today's standards (or course this depends on your income)

But be careful with thinking your income will increase. In my experience kids get more expensive as they get older. (My oldest is only 2.5 and he just eats and eats and goes through clothes and shoes at a ridiculous rate and we haven't even started paying for kinder fees) plus your wage will get eaten by childcare costs. Plus you might not want to go back to work, and then second babies happen and it all goes to hell :)

When in doubt, just split the differecce and do 50% fixed. At least then interest rate increases won't be as noticeable.

And Worth mapping out the next 10 years on paper as a time line and then pick a time period where fixed will give you your certainty without locking you into a particular mortgage for too long.






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