Home Loan Structure

[MrMarkT]

Hi there i would like your input about structuring home loans.

My current fixed amount will be expiring in less than a month and i just need a reassurance i am heading down the right path.

My current lending provider is ASB i have a fixed floating structure which is 70 % and 30 % split from the total amount lender-ed.
I was thinking of keeping the 70 - 30 split though splitting the 70 % fixed into 1 and 2 year loans, to keep it rotating. I will also be sticking with p&i.

What do you think?

[Rosco]

HI Mark,

Are you aggressive or conservative?

At the moment you can get 5 year rates for 5.99% (just standard advertised rate!). In the past interest rates have averaged 7.5-8%, so most people are thinking that sooner or later interest rates will go up, its just a matter of when.

Also how big is your mortgage? 30% can be quite a lot to have on floating and paying a higher % for. If you are fixing other loans for 1 year, then your floating portion should only really be as much as you can pay off in the next 12 months.

I'd look at something like
Option A - basically split in two
Floating $30,000 (or whatever you think you can repay in next 12 months), normally 5.74% but if ask should be able to get 5.50% at least
1/2 remaining at 1 year fixed 4.99% - so half at very good rate, and means you take advantage of low interest rates
1/2 remaining at 5 year fixed 5.99% - so half fixed for long term to give you long term interest rate protection. Pay a little more now, but when interest rates were floating at around 9-10%, how good would a 5 year at 5.99% felt?
Average interest rate 5.5% which is still really good.

Option B - split in three
Floating $30,000
1/3 1 year
1/3 2 or 3 year rate
1/3 5 year
So spread loans over different periods, so that if interest rates rise, you only get a staggered increase in interest.

Ross

[MrMarkT]

Thanks Ross another question what bank fees will i be able to waiver? debit, cc

[MrMarkT]

Another note with your 4.99% rate indicated above can i negotiate to get to that amount when i have an lvr or roughly 89%??

[Arpoo]

Hi MarkT.

Just my 2 cents worth....

When I had my first rental property I used to split it 3 ways; 2-year fixed, 5-year fixed and floating. After that I found that it got too complicated as I got more rentals. Imagine if you have 3 rentals and each of them have 3 separate terms. Would be a nightmare to keep on top of 9 terms let alone managing all other rental aspects. I just went rental A whole loan on floating, rental B fixed 2-years, etc, etc..... I think you get the idea.

I guess the question is how many properties do you you have or plan to have.....

As for P&I, really depends on which stage you are in your investments. If you are looking to buy more, than I would suggest sticking to interest only so that you can accumulate deposit quicker. I think you are better off using that funds to pay off your own home mortgage quicker (presumably you got a mortgage on your own home).

Hope this helps.