Hello Everyone,
I see some unhappiness with brokers in this thread here .
Unfortunately you will get from time to time a broker with limited knowledge and experience or even be speaking to a broker's administration staff. Who in a lot of cases can provide you with good perdinent information as long as it is on topic and standardised answers that are required.
As for the issue at hand. To fix or not to fix. I like a lot of other brokers will say 'It really does depend on your individual situation'.
OK. Now that I have covered the formalities. Here is some information for everyone.
A recent news release from Dow Jones Released on the 7th October 2009 showed the forecasts for the base cash rates (those set by the Reserve bank) over the next year.
These surveys are put out to the head economists in these companies and each submit their opinions.
Of these institutions we have names like AMP, ANZ, CBA, Macquarie, St George, NAB and Westpac. As well as other entities such as UBS, J P Morgan, Royal Bank of Scotland, Goldman Sachs... etc. There are some big players to say the least.
On AVERAGE the top economists have given their verdicts as such.
Date Median Low/High (from those polled)
NOV 2009 3.50 3.25/3.50
Dec 2009 3.50 3.50/3.75
Mar 2010 4.00 3.75/4.25
Jun 2010 4.00 3.75/5.00
Dec 2010 4.50 4.00/5.00
From looking at the figures over the past 20 years the trend in these cash rates are cyclical with high and low points.
Sourced from : http://www.rba.gov.au/statistics/cashrate_target.html
Jan 1990 highpoint = 17.00-17.50
Jul 1993 lowpoint = 4.75
Dec 1994 highpoint = 7.50
Dec 1998 low point = 4.75
Aug 2000 highpoint = 6.25
Dec 2001 lowpoint = 4.25
Mar 2008 highpoint = 7.25
Apr 2009 lowpoint = 3.00
Oct 2009 = 3.25
Although nothing is certain there is a clear up and down trend.
For a lot of investors Fixing is paramount to Evil. This reduces the ability to move lending around when wanted and to vary the terms and conditions when needed.
As another poster mentioned the fixed rates are particularly higher than the Standard Variable and this is for good reason. This is based on the above economist forward projections.
If you Fix in for 3 years. The lender expects you to be with them for at least 3 years. Otherwise you are penalised. After that 3 years they expect that you 'may' stay with them but based on averages more often than not you will sell, refinance, or vary your loan.
I have been unable to find a source for this statement however this is something I had learned while working directly for one of Australia's lenders prior to becoming a Mortgage Broker.
On average through the sale, refinance or variation of loans the average expected life of a home loan is 3-5 years. Any extra time after this is just a bonus income source for most lenders. As such lending is calculated on these principles.
As such if the bank is only expecting your loan to be a source of income for 3-5 years. They in fact need to plan for the next step in lending. If they are competitive at the time your fixed rate loan comes off maybe you will stay.
Fixed rates can be calculated by estimating what the average interest rate 'may' be at the time your fixed period ends. If the trend is upward and a bank is lending fixed money at 7% for instance. This is factoring in increases in other areas of the banking industry such as savings accounts, term deposits etc. (a savings account may be 4.5% return now, but may be 5.5% in 3 years time). (not a concern for the person borrowing the money however).
A good broker can help steer you through all of this information. Main things to consider when choosing whether to fix or not may be (but not limited to).
1. Are you looking to sell, refinance or renovate your home prior to the end of the fixed rate period?
2. Do you have extra surplus income you wish to place into your home loan directly?
3. (check with your accountant) Will you benefit best (tax purposes) by putting your investment property on higher interest fixed rate over two years rather than the lower interest variable?
4. Do you think the variable rate will exceed the fixed rate that you are looking at prior to or near the time your fixed rate will come off?
5. Do you think the variable rate will drop prior to or near the end of your fixed rate period?
6. Do you have a fluctuating income that you need a clear and obvious fixed repayment per month to calculate your minimum expenses?
7. Have you got other lending/properties at other institutions? And do you have plans to continue growing your portfolio? If so, is it best to lock a loan into fixed rate if you may need to move it for equity purposes?
There are MANY different factors to consider on this topic, and although any individual can study these areas over a weekend or a week or a life time. Noone can ever get it perfect 100% of the time.
I hope I havnt provided too much information above that overwhelms people. But in reality, this is just the tip of the iceberg when it comes to choosing what lending is needed.
Fixed, variable, fixed with offset, variable with offset, basic home loan, which lender to go with, what term to put on the loan, principle and interest, interest only, interest in advance, bridging, line of credit, principle increase, equity loan, lend in a single name, couples name, company name, trust's name, guarantor's, no guarantor's etc... and I could go on.
It is sometimes easy to not see the worth in obtaining a professionals help when it seems like there isnt much transparency or freedom of information to a specific topic. However, its not generally just because its an easy topic to address. Rather that its something that cant just be taught overnight.
I am a Mortgage Broker and proud of it. As a side note Ive never really enjoyed having to pay airfares to fly to Sydney or Melbourne from Brisbane. However, I would always choose to pay that fee over jumping in the cockpit and giving it a burl myself.
If in doubt have a chat to someone who knows the industry. If they cant answer your questions its probably that specific individual not a summarisation of the industry itself. Shop around, what can it hurt? Or, jump on these forums and pose the questions.
We are out there. And more often than not we are happy to help.
Regards,