Finance advice
Sally Tindall

The pros and cons of fixing your rate

By Sally Tindall

If there’s one decision that can stress you out as an investor, it’s whether to make your mortgage variable or fixed.

The problem is that you not only have to analyse the current market, you have to predict how the market will change during the fixed-rate period. With so many variables in play, even property and finance professionals can get it wrong.

Unfortunately, I can’t offer you a magic formula that will tell you whether or not to fix. But what I can do is lay out all the pros and cons to help you make an informed decision.

The pros of fixing your rate

Fixing your mortgage gives you certainty. It means you know exactly how much you have to repay each month. That, in turn, makes it easier to budget – which is particularly important in the early stages of your investment, when the property is most likely to be negatively geared.

Fixing looks even better if interest rates start rising after you’ve taken out the loan. The higher rates rise during that fixed-rate period, the more you save.

According to analysis of the approximately 4,000 home loans in the RateCity comparison engine, it’s currently cheaper to fix. Here are the current average interest rates for investors:

  • Variable = 4.90 per cent
  • 1-year fixed = 4.52 per cent
  • 2-year fixed = 4.47 per cent
  • 3-year fixed = 4.55 per cent
  • 4-year fixed = 4.87 per cent
  • 5-year fixed = 4.94 per cent

Anyone who fixed in November would be feeling good: since then, the average variable rate has increased from 4.56 per cent to 4.90 per cent.

That trend is likely to continue, for two reasons. First, the next move in the cash rate is likely to be up. Second, APRA is likely to further tighten the screws on investors.

Of course, things can change quickly, so neither of those events is guaranteed. That’s why you should always consult a professional before taking out a mortgage.

The cons of fixing your rate

Just as fixing can seem clever when rates are rising, it can seem foolish when rates are falling. The lower rates fall during that fixed-rate period, the more you lose.

That might seem irrelevant now, given that most experts think interest rates will keep rising. However, an unexpected domestic or international shock could change everything.

If you take out a fixed-rate loan, you’ll probably have to accept fewer features than with a variable loan (such as no offset or redraw). Also, many fixed-rate loans won’t allow you to make extra repayments.

Another problem with fixing is that you’ll have to pay a break fee if you want to close the loan early as part of a refinance.

Walking both sides of the street

If you’re finding it too hard to weigh up all these pros and cons, there is a third option – splitting your loan.

Splitting is when you divide your mortgage in two, with one part fixed and the other part variable. You can split equally, but you don’t have to. So you might decide to make 30 per cent of your loan fixed and 70 per cent variable; or 60 per cent fixed and 40 per cent variable.

Technically, you’ll actually be taking out two mortgages. This can work to your advantage if the fixed-rate loan doesn’t have offset or redraw but the variable loan does.

Of course, if you split your loan, you not only sign up for all the advantages of variable loans and fixed loans, you also sign up for all the disadvantages.

At the risk of stating the obvious, this is a complicated decision, so it’s a good idea to take professional advice before signing on the dotted line.

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  ["title"]=>
  string(72) "Mortgages in a tighter lending economy and why Brisbane is a good option"
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  string(72) "mortgages-in-a-tighter-lending-economy-and-why-brisbane-is-a-good-option"
  ["introtext"]=>
  string(255) "

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!

" ["fulltext"]=> string(818) "

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

    \r\n
  • The pitfalls that he has seen people get into<\/li>\r\n
  • Interest only loans and if that is the way to go<\/li>\r\n
  • How the mortgage division supports the overall business of Rethink Investing<\/li>\r\n<\/ul>","clientImage1":"images\/podcasts\/Son-Pham.jpg","clientUrl1":"https:\/\/rethinkinvesting.com.au\/","clientName2":"OpenCorp","clientDesc2":"

    Whether it\u2019s building a successful property portfolio or investing in one of their Development Funds, Open Corp can help you through every stage of your investment journey. The team has 40 property specialists who collectively have been involved in over $4 billion worth of property transactions and the acquisition of more than 8000 homes and investment properties.<\/p>\r\n

    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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    • Why Brisbane is a good investment option right now<\/li>\r\n
    • How he wants to help clients take advantage of the current market<\/li>\r\n
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Smart Property Investment" ["menu-meta_description"]=> string(91) "Financial tips for property investors, from mortgages to cash flow to saving for a deposit." 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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
Mortgage Trusts, an alternative first step for property investors
Should a real estate title be in one person’s name only?

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A property investment plan years in the making
object(stdClass)#1204 (52) {
  ["id"]=>
  string(5) "18287"
  ["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. 

" ["fulltext"]=> string(2323) "

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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