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Taking out a largish mortgage how much to fix how much to float?

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  • Taking out a largish mortgage how much to fix how much to float?

    Been there in the past few days? what did you decide?

    Bernard says fix, fix, fix what do you say?

  • #2
    Does Bernard even have a mortgage?


    • #3
      He probably doesn't but one of his trusts may


      • #4
        Fix. Varying terms.

        Why float when the 6month rate is so much lower. Long rates are going up.


        • #5
          True. Oh the pressue.....


          • #6
            Do you have a spreadsheet to work out your repayment scenarios? Just took out a 320k loan and split it up to 4 different repayment structures.

            Fixed 6mths
            Fixed 12mths
            Fixed 18mths
            OD variable

            I guess most importantly what suits your position. We are able to pay lump sum every 6months so that shortens the loan repayments a little faster.


            • #7
              Evie - looks sensible. Any reason why you didn't put part on a longer term (3 years)

              I did 6m, 1y and 2 years with floating OD when I bought my latest (PPOR).


              • #8
                Originally posted by CJ View Post
                Evie - looks sensible. Any reason why you didn't put part on a longer term (3 years)

                I did 6m, 1y and 2 years with floating OD when I bought my latest (PPOR).
                Firstly the interest rate was very high for 3years. And with our situation, we are able to save and pay lump sums every 6months, 12months and 18months. I have structured this loan hand in hand with the lump sum in order to clear the loan.


                • #9
                  I reckon might not be a bad idea to go half for 1 yr and half for 5 years, if you do not intend to sell in the next 5 years of course.
                  Last edited by mortgage broker; 11-06-2009, 07:03 PM.
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                  • #10
                    As you are able to save lumps to reduce the principle, I would suggest you split some of your loan off to revolving credit. This gives you the benefit of putting your savings towards your loan, reducing your interest costs while that extra is sitting in the bank, and still giving you access if you have a rainy day need. A win win situation for your. If you have it in a savings account (or eftpos) any interest to you will be minimal - and you will pay the IRD a slice of the return.
                    Apart from that I do think a split of part of the loan over the avaliable options is a good idea. Covers your bases.


                    • #11
                      Don't split the loan up. It's more fees, more expenses, more documents and more hassles. If you want to refinance or sell later on then it will be more complicated and you'll probably have to pay break costs as all your loan terms will mature at different points in time.

                      There are very good 1 and 2 year rates available at present.

                      IMO you would need a very good reason to go floating or on a 6 month rate, as there is substantially more upward risk than downward pressure, and they can't fall much more at all.

                      And unless shorter term rates hit 11% in 2012/13, then fixing for 5 years is a license to throw money away.

                      My 2c.


                      • #12
                        Firstly I would say that it is definitely not advisable to split the loan up while it is fixed, unless you do a cost analysis.
                        Then i would say that evie has already said that some is on variable overdraft. If this is just a standard floating loan, then likely it does not provide the options of a revolving/line of credit. For the disciplined lender this is a valuable tool for reducing interest.
                        Although I do not know where the lumps sums come from, it gives far better flexibilty to be able to credit them to a loan, without having to decide which one & when.
                        Given that it is hard to say where rates will go - I am betting the banks have no true idea & are just building in some insurance, just in case - fixing long term is a big call, but a personal one based on individual circumstances. In the absense of certainty, covering bases is in my opinion a good alternative.
                        Their decision to split across the board is not that stupid as it provides smaller amounts on different timeframes, and provides greater opportunity to take advantage of whatever may come up.

                        And, if you really do think the short term rates are on the up, then there really is no disadvantage, because no break fees will be involved.

                        Aside from that, I would add that, if anyone does not feel they cannot afford to risk a move upwards - find a current rate & term that works for them, go with it, then stop looking at what the rates are doing. If you have a good mortgage advisor, they should let you know of possible changes that may impct.
                        In the meantime, you have what you decided was right for you & that's all that matters.