Lock it in Eddie…
What exciting times we have currently in the mortgage world. For the first time in 5 years we have seen fixed home loans rates below the 5% with possibly better days to come.
I want to put some perspective into these low fixed rates we are seeing. I often speak to clients who say… “nah I will wait as I think they will get better”… now that may be the case but they may also go the other way.
Fixed rates do not change in line with the RBA’s monthly decision. They can change at any time and more so now than before, the banks often do not tell us when… it simply changes. Especially when they go northbound.
What I do recommend to many clients is to get prepared and be ready to take the great offer when it comes. Now what I mean by this is that, why wouldn’t you split your loan into 2 splits, so that when a great fixed rate pops up you can jump on it straight away. You can then lock part of your loan in and leave the remainder variable. If you have two loans then you may not need to do this exercise but for those with just a home loan, it makes perfect sense.
Why do this? Well it allows you to hedge your bets… in case an even better fixed rate comes up later. You take the cheap rate now with the ability to also grab a better rate if it comes up.
What I really wanted to cover in this Blog though was to put some perspective into your eyes… as you know I think about things practically and this topic is no different.
For the vast majority of mortgage owners, your current variable loan sits between 5.6% and 5.9%… if its higher than this then you should be talking to us anyway to get that part adjusted correctly…
So using the middle ground here of 5.75%, that makes a fixed rate of 4.99% three decreases of a quarter of a percent. Now in the past we have not seen the banks drop the full 0.25%, they are generally only dropping 0.2%… they use the poor pathetic excuse that the cost of funds continue to increase… and so do their profits every years… so I simply do not buy it!
So with that in mind, its almost 4 drops of a quarter of a percent to match the fixed rate available currently.
If you believe the interest rates will drop by 0.8% in the next 12 months, then they would need to drop by another 0.8% in the following year to make up the savings you would make by taking the fixed rate now.
And that’s to only get you back to being even???
That seems a pretty big gamble to me?
But to put this into figures, the interest you would save on a:
- $300,000 loan = $200 per month
- $500,000 loan = $333 per month
For our investors, that potentially makes your property positively geared… isn’t this what we set out to do when you decided to invest in the first place???
So if this is something you think you may suit you, call us chat about your fixed rate options today!
For those who don’t, we have given you fair warning to get in and take advantage of this opportunity, so don’t come crying to me when they go back up and you missed out…lol