Home Loan & Interest Rates - to fix or not??

you mean the little boy?

No I mean wakeboardANDY...

Well, I'm sure Mr Andy won't mind my typo.

I thought an offset is a normal account. You can withdraw any amount from a offset (we use it to pay bills from) but you would be silly to pay a redraw fee (if there is one ) for the same small amounts.

Joey, I guess it depends on the terms of your re-draw; ours is a $15 fee per time and minimum of $1000 which I think is pretty reasonable, just enough to stop people frittering it away on schrapnel amounts.

I wouldn't re-draw for amounts of less than $1000 anyway and saved way more than $15 in interest by putting the extra money onto my mortgage.
But if you are paying everyday bills you would use an offset account - I was doing it more so that I could make extra payments and have the security that I could access the money if I needed to - for example we once re-drew $10,000 for a car and $15 was way cheaper than the application fee for a personal loan and we repaid it at home loan rates.

Aside from anything else, isn't it also true that when rates are at their rock bottom, that banks' fixed packages will be somewhat less attractive than when rates are just "on the way down"?

Might be worth seeking to fix your loan (or, a portion thereof) just before rates go to the bottom. Find a figure you're comfortable with repaying, then fix a part of your loan and away you go.

That's the theory we're operating on, anyway.

--Mike

Mike, we have to look into the archives for the answer. An observation that can be made is that fixed rates change in anticipation of variable rate movements. So I would tend to agree with you.

For example in December 2008 Westpac had a Limited Time Special of 4.99% 3 year fixed which I am told sold like hot cakes. Well, variable rates are already there now, less than 2 months later. I wouldn't be surprised if those people who snapped them up want to break their term.

I can't believe people actually signed up to those... I mean if you read a newspaper or watch the news or listen to the radio, surely you would know they were going to go much lower than that.

I agree, the banks know more than we do, and by fixing, you are basically trying to outsmart banks. Doesn't happen often.

The only time fixing is good is if you happen to fix at the lowest point just before a rise. like about 5 or 6 years ago when it was at about 6% before it started going up. But how do you know if it's going to keep going down or go back up?

I would be punting that it is going to go down lower again still.

I might fix mine when it gets down really low and when the credit crunch seems to be easing in Europe and USA. But not yet, no way.

So, who would fix their home loan rates for 3 years if the rate was 3.99%?

me, true i am greedy 3.99% for sure.....but make it 5 years not 3.

Cheers Michael

I would in a heart beat.

Nope. Cause like you said, the banks probably know it will go lower for a while (say 1-2 years) and then it will go back up to average less than 3.99%. Using the initial period to pay off faster than the rate + $10k that is normally allowed with fixed rates should put me ahead staying on variable.

I'd certainly consider fixing a portion at that rate, maybe 50 - 60%. The rest variable for all the flexibility that entails. I don't believe we will see variable rates at a large margin below 4%, and certainly not for an extended period.

3.99 no way would I fix... I would consider fixing if mortgage rates got to 2%.

Mmm...probably would consider fixing a portion of the loan, but I'd be checking the news to see what chance there was priced into the market of the rates going lower, and in addition I probably wouldn't fix until sometime after August this year regardless--I reckon that's probably when we'll get a look at rates going up. But, of course, check again closer to the time.

I won't be fixing my loan either, no matter how low the rates go.

Fixed rates always tend to be a bit higher than variable rates so you're always starting from behind, and rates then have to rise significantly before you can consider that you've broken even. I'm guessing that the gap between fixed and variable rates will grow too, the lower that interest rates get.

Thanks to the payments that we're making, and the drops in the interest rate since our loan was restructured when we moved in, we've only got roughly 6 years to go to pay the loan out, so even if rates start to rise again in a couple of years we've already paid the bulk of the interest on the loan. It's just not worth it for us to fix.

Obviously it will be different for someone who will take 10-15 years to pay their loan; it might very well be beneficial to wait a few months, and then lock in a low rate for a few years. But please, people, don't complain if you lose the gamble.

All those poor people who fixed their loans twelve months ago............ If you fix now and fixed interest rates drop again then you'll be like them.

I agree with Eager - I would never fix my rate.

As I said on page 1, fixing almost always works to the banks advantage - as Eager said you start from behind, you don't get the current variable rate, and over the life of the loan you lose out, and that's before factoring in that fixed rate loans lose out on flexible features like re-draw facilitys, ability to make extra payments etc.

My son took out a loan for a unit 11 months ago and I talked him out of going with fixed rate, bank tried to talk him into it (I wonder why? ), lucky he listened to his mother more than to ANZ as his minimum repayment has fallen from $404 a fortnight to $323 since he's had loan and he is allowed to make extra repayments so has been paying $450 since he got a pay rise and extra lump sum when he sold a motor bike.

IMO, that's the way to do it - when interest rates are low, keep paying same or more than before they dropped and then you create a buffer for when they go up.
I have always kept paying same amount rather than pocketing difference when rates drop and have therefore paid loans much sooner than the original term - my current loan will be paid out in less than 2 years.

OK wouldn't fix for anything less than 5 to 7 years as otherwise I don't see the point...your trying to protect against future shocks.

Current fixed lending rate for 5 to 7 years is still 0.2% either side of 7%-ish, so interest rates would need to fall 3% to get to the interest rate you've nominated (I know it's not a prediction).

Current cash rate (RBA) is 3.25%...so cash rate would need to fall to 0.25%...theoretically possible for cash rate to fall that far (see U.S.) if it did we would be in deep do-do.

Would I fix...nah...firstly I don't think banks would offer a rate that low because they would be mad to...the economy will recover.

Secondly, I do what Helyn and Eager do, I'm still paying my loan off at the same rate as when it was at the peak of the recent cycle. The only way to "beat" the bank is to pay off the mortgage early which most fixed rate arrangements don't allow you to...now is the time to hit you mortgages like there is no tomorrow if you can.