Finance advice
David Johnston

Is now the time to fix rates?

By David Johnston

Everyone seems to be asking the million dollar question at the moment: is now a good time to fix my debt?

Blogger: David Johnston, founding director, Property Planning Australia

The response very well could be 'how long is a piece of string?'

Why? Because most people I have met are unable to predict the future. Let’s push crystal balls aside and touch on a few points to support the case for fixing –

•    Interest rates are at historical lows. Over the last 15 years I cannot recall interest rates being lower than 4.99%. Currently there are some lenders whose interest rates have breached this historical interest rate barrier.

•    The reserve bank interest rate is the lowest it has ever been at 2.75%.

•    History is usually the best guide for what will happen in the future. Given we currently have historically low interest rates you could surmise they are unlikely to go much lower.

Now, a few reasons for holding your fire –

•    Interest rates could drop further as some pundits are predicting (using that crystal ball no doubt!)

•    If you are on a variable rate loan most lenders will allow you to fix part or all of your debt anytime without cost

•    Historically speaking the analysis suggests that most people have been better off riding out a discounted variable rate rather than fixing debt. Another way to look at it is, the banks have usually made more profit when people have fixed there loan v’s riding the discounted variable rate.

So given all this, I can hear you asking the question, so how do i make a decision then? You may even suggest that I should get off the fence and make a call one way or the other! As with all financial and investment decisions, when we remove the emotion and boil it down, we can better appreciate that our decisions should always be made to enhance our lifestyle and peace of mind. So let’s bring the conversation back to your personal circumstances and preferences. Here are a few key questions you should ask yourself –

•    Would you like more certainty in knowing what your loan repayments will be?

•    Do you feel like you are stretched with your cash flow?

•    Do you have little equity or cash buffer to draw upon if things got tougher?

•    Are you risk averse?

•    If rates kept going lower after you fix, would you be comfortable knowing that you cannot access the lower variable rate without a hefty penalty that would almost certainly make it non-beneficial to get out of your higher fixed rate?

•    Are you confident that you will not sell your house or want to refinance during the fixed rate period?

•    Do you have non-deductible and deductible debt, and would you feel more comfortable knowing that you had a set repayment for part or all of one or the other?

If you answer yes too many of these questions, then you are starting to build a case for fixing your debt. Ultimately, choosing to fix, like most financial and investment decisions should be dependant primarily on assessing your own ‘personal economy’ first and foremost with the ‘external economy’ providing a secondary perspective for decision making.

Fixing really is a risk management strategy so you would be well placed comparing the decision of fixing your loan to that of paying an insurance premium. You hope you don’t need to make a claim (ie variable rates have increased), but if you have to, you will happy that you had it in place. The overarching philosophy when making the decision is “will it help you sleep better at night irrespective of what rates do in the future during the fixed period?”  

Finally, remember that most fixed rate loans have limitations on making additional repayments and do not offer redraw or offset functionality. This means that it usually makes sense to keep an amount of the debt variable permanently. That amount should be at least equal to, or slightly more than you think you could repay during the fixed rate period.
Happy fixing and may your ‘crystal ball’ be tuned in when you make the call. Better yet, have a chat with your trusted mortgage or financial advisor, if you are fortunate enough to have one, before making the big decision.

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About the Blogger

David Johnston

David Johnston

David Johnston is the founding director of Property Planning Australia (PPA) and co-author of Property For Life - Using Property To Plan Your Financial Future. Property Planning Australia was established in 2004 and is a multi-award winning property, finance and financial planning consultancy that provides its clients with a holistic approach to financial and investment advice.

The PPA team specialise in developing holistic property strategies for first home buyers, investors, upgraders and those transitioning into retirement.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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Tune in to the latest episode of Property Showcase, the podcast with the inside track on the products and businesses that will help turbocharge your portfolio, maximise returns and make your overall investment experience seamless and stress-free!

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To hear more about these services, make sure to tune in to this episode of Property Showcase!

 Make sure you never miss an episode by subscribing to us now on iTunes!

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Son Pham is the accredited Head of Mortgages at Rethink Financing\/Rethink Investing. He has over 6 years\u2019 experience writing loans, over 12 years in the wealth management industry working for the likes of CBA, AMP and private practice and he is also a licenced financial planner (AFSL 326450). He has multiple investment properties that are cash flow positive which help pay his mortgage on his home and fund his lifestyle.<\/p>\r\n

Son is able to write all types of residential and commercial property loans.<\/p>\r\n

In this episode of Property Showcase, head of mortgages at Rethink investing Son Pham joins host Tim Neary to unpack how an investor should approach getting a mortgage in place with banks tightening down on serviceability.<\/p>\r\n

Hear from\u00a0Son\u00a0about:\u00a0<\/p>\r\n

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  • The pitfalls that he has seen people get into<\/li>\r\n
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    In this episode of Property Showcase, director of investment services for Open Corp Michael Beresford,\u00a0joins\u00a0editor of Real Estate, Tim Neary to share why he disagrees that the cooling market means that the best times are behind us.<\/p>\r\n

    In this episode, hear from\u00a0Michael\u00a0about:\u00a0<\/p>\r\n

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Mortgages in a tighter lending economy and why Brisbane is a good option
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Will Magee has had ambitions to enter into the Australian property market for quite some time, but it has been more than just finances holding him back.  Having been granted permanent residency just two weeks ago, Will is wasting no time and is now in the process of signing papers and finding his first investment property.

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In this episode of the Smart Property Investment Show, Will joins host Phil Tarrant to share why he is purchasing his first property in partnership with his brother, discuss the complications that can arise from such a strategy, and unpack the ongoing plan for building a joint property portfolio with his brother.

Will will also share how they approached saving for their first property, why he is taking out the mortgage in his name exclusively, and share their savings plan for the year ahead.

If you like this episode, show your support by rating us or leaving a review on iTunes (The Smart Property Investment Show) and by following Smart Property Investment on social media: FacebookTwitter and LinkedIn.

If you have any questions about what you heard today, any topics of interest you have in mind, or if you’d like to lend your voice to the show, email [email protected] for more insights!

RELATED AREAS OF INTEREST:

From property in Australia to a ski lodge in Japan
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A property investment plan years in the making
object(stdClass)#1203 (52) {
  ["id"]=>
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  ["title"]=>
  string(75) "Regional Victoria showing up Melbourne in price performance, new data finds"
  ["alias"]=>
  string(74) "regional-victoria-showing-up-melbourne-in-price-performance-new-data-finds"
  ["introtext"]=>
  string(139) "

Median house prices in regional Victoria outperformed that of Melbourne in the June quarter, the latest REIV figures reveal. 

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Median house prices in the regions rose 4.0 per cent to $419,500 but in Melbourne they dipped by 0.6 of a percentage point to $840,000.

The result in Melbourne was due to a 0.8 of a percentage point fall in prices achieved at auction; this was despite a lift of 2.3 per cent in private sales.

Inner Melbourne suffered due to auction prices, where median prices fell by 4.9 per cent to $1,459,000 but it was middle Melbourne that was hardest hit, with a 5.4 per cent drop to $974,500.

Outer Melbourne had a good quarter with the median rising by 0.5 of a percentage point to $681,000.

Apartment prices in regional Victoria grew by 3.7 per cent to $304,500 while the metro media was up by 0.5 of a percentage point to $604,000.

REIV President Richard Simpson said that despite fewer sales, many sectors of the market were performing well.

“2017 was a bumper year and while the trendline has flattened, despite the fall in median house prices in the June quarter, median prices are still up this calendar year for both houses and units, in Melbourne and in the regions,” Mr Simpson said. 

In particular there was been strong growth in regional centres which is probably due to the first-home buyers’ concessions said Mr Simpsons.

“The first-home buyers’ concession has been a boon for regional areas. A new entrant to the property market buying a house at the regional median will pay no stamp duty, while a first home buyer of an apartment in Melbourne at the median price would pay stamp duty of nearly $25,000,” he said.

Mr Simpson said that more prospective buyers are looking towards regional Victoria which is also having an effect in Melbourne.

“Melbourne’s outer perimeter continues to grow. Small increases in the June quarter mean that the median prices for both houses and units have risen over 10.5 per cent from a year ago.

Mr Simpson said moving forward that vendors need more realistic expectations as the highs of 2017 are now over.

“Negative chatter about the future of the sector coupled with stronger lending controls by financial institutions has created some uncertainty and vendors need to be realistic with their price expectations,” Mr Simpson said.

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Regional Victoria showing up Melbourne in price performance, new data finds

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