Hi - we are considering breaking our fixed term on our rental property which is currently fixed at 7.65% until Dec 2011. The bank has quoted us $5500 to break the mortgage and will offer us 6.5% fixed for 2 years and 3 years fixed @ 6.9%. Reasons we are considering breaking is to help cashflow but to also spread the risk of interest rates being considerably higher come Dec next year (although who really knows). Any thoughts/advice appreciated
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Blackman, I think you will find that once you stat breaking rates you are effectively crystalising your loses. You see over a 20 year term you will find that the losses and gains level out. But once you start breaking you are adding another layer of cost to the funding.Hamish Patel | ph: 09 625 4693 | mob: 021 625 693
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As others have said, the size of the mortgage will really affect the advise....but I'll take a stab and a different tack.
Assuming 250k and the two rates of 7.65 & 6.50.
Difference per week is $55 per week.
Minus the 5,500 @ 6.50 = $7
Therefore net cashflow increase is $48 per week.
But your mortgage is now 255.5k
Interest rates in Dec 2011??? who knows.
BUT...if reducing your cash flow by $48pw is really that important; important enough to increase your debt by 5,500 then you should perhaps have a look at your overall situation.
Do you have the appropriate safety margins in place to weather a few squalls in the economy?
I may be way off base here...just another perspective.
cheers
SB
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blackman - They are charging you roughly the same break fee as you would save in interest if you refixed for 2 years, so there is no saving there. The only advantage would be longer term savings if interest rates rise before Dec 2011. If you're only refixing for 2 years at this point, is the extra 8 months worth the gamble? Rates would have to rise quickly and significantly to make it worth your while.You can find me at: Energise Web Design
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