Wayne I agree with you. I will fix for 5 years as soon as I feel that the rates have bottomed out. Until then I will float or fix 6 months. Sure I will not be guaranteed to get it 100% right, but at the moment there is little doubt that the trend is for rates to keep falling or stabilise at the most. So no reason to commit long term. MHO.
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Originally posted by Perry View PostFeelings! The nub of it, to be sure!
If you have several mortgages (split big ones into smaller chunks) and stagger the 6 months then you won't false trigger on all of them.
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As I said, I will not necessarily get it right. But I think I will be close. If I lock for 6 months and the rates go higher faster than I expected, I will break and fix long term ( there will be no break cost as the rates will have increased). If rates go lower in the mean time I will lo again at lower rate at expiry of 6 months. Eventually the mood will shift and then I will lock the whole lot long term.
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Question about fixing
Hey guys,
There is always the worry that if you fix for a period of time, say 2+ years that the interest rate might come down during that period, you either need to sit it out or you need to break and re-fix to lock in a better deal (sometimes this negates the reward, sometimes a competing bank will help pay the break fee etc, or maybe there are other reasons to do it).
As i understand it, the break-fee increases as the difference between the rates increase - crude example - I fix at 6% for 2 years, a year later, 2 years are offered at 5%. If it had dropped further say 2 years at 4.5% the break-fee would have been more.
Got me thinking - at the moment, 6 mth, and especially 1 year rates are VERY low (low 4%'s), so low that I would not expect the floating or the 2 year+ rates to get close to this over the next 6-12 months.
Given this, (assuming you were not going to sell your property), would you currently always be better to fix for 6 mths or 1 year than float?
See, even if rates continued to drop rapidly, you could break, potentially at no cost because the rate you are fixed at is so low (low 4%'s), and refix at the new better rate (maybe also low 4%'s but for 2+ years).
Thoughts?
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Like you Judge getting it right is impossible to accurately predict. I am very happy putting everything on 5 years at under 5%. I just can't see how that can go badly for me. Floating or short term money can expose you to an economic shock. I don't know how fast rates could rise but i would rather not find out on my own mortgages :-).
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Originally posted by Damap View PostLike you Judge getting it right is impossible to accurately predict. I am very happy putting everything on 5 years at under 5%. I just can't see how that can go badly for me. Floating or short term money can expose you to an economic shock. I don't know how fast rates could rise but i would rather not find out on my own mortgages :-).www.ilender.co.nz
Financial Paramedics
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I often wonder why a lot of investors are prepared to gamble over this.
Say you fix for 1 year at 4.3%. Then in October 2016, maybe all the long term rates have gone up. Then interest rates start to go up. Maybe you get another 1 year at a good rate, but then 3rd, 4th and 5th year are all higher. So you get one or two good years to have 2-3 years of higher rates.
Or you fix long term, only to find interest rates drop.
So why not use a spreading approach now? I recently wrote a blog with an interest tip, and the below shows an average of 4.62%!
3. My personal approach is to:
- Float $20k to $50k
- Fix 1/3rd 5 years, close to 5%
- Fix 1/3rd for 2 or 3 years. 4.5%?
- Fix 1/3rd for short term, maybe 1 year 4.35%
- Avg 4.62%
Book a free chat here
Ross Barnett - Property Accountant
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The spread approach is the way I currently handle things..
I guess what I am suggesting though is, if you lock in at 1 year at say 4.3% and...
1. rates start going up - break the mortgage at likely no cost as the bank would prefer you were on a higher rate rather than a lower rate
2. rates continue to drop - either wait out the year, or potentially break at, i am guessing no cost as the 2 year+ rates would likely not be lower than the 4.3% rate you secured for 1 year.
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Originally posted by Rosco View PostI often wonder why a lot of investors are prepared to gamble over this.
Say you fix for 1 year at 4.3%. Then in October 2016, maybe all the long term rates have gone up. Then interest rates start to go up. Maybe you get another 1 year at a good rate, but then 3rd, 4th and 5th year are all higher. So you get one or two good years to have 2-3 years of higher rates.
Or you fix long term, only to find interest rates drop.
So why not use a spreading approach now? I recently wrote a blog with an interest tip, and the below shows an average of 4.62%!
3. My personal approach is to:
- Float $20k to $50k
- Fix 1/3rd 5 years, close to 5%
- Fix 1/3rd for 2 or 3 years. 4.5%?
- Fix 1/3rd for short term, maybe 1 year 4.35%
- Avg 4.62%
monitoring floating rates, dealing with banks often.
Money to me just there to make your life enjoyable if
accumulating it involves more hassle than necessary
it defeats the purpose.
Its like folk I read about rining the bank and fluffying about
for 0.5% off the floating rate for the next two weeks till OCR
announced - do people not value their time anymore ?
Best overall approach is to fix for 5 years at 5% - 20 year mortgage
I'd be faced with 3 uncertain times - how many with your
theory ?
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Originally posted by iwik View PostCrikey - what about actually living on this planet than
monitoring floating rates, dealing with banks often.
Money to me just there to make your life enjoyable if
accumulating it involves more hassle than necessary
it defeats the purpose.
Its like folk I read about rining the bank and fluffying about
for 0.5% off the floating rate for the next two weeks till OCR
announced - do people not value their time anymore ?
Best overall approach is to fix for 5 years at 5% - 20 year mortgage
I'd be faced with 3 uncertain times - how many with your
theory ?
Its just hypothetical, food for thought, getting a better understanding of how stuff works. Yeah i over-analyse stuff, but its because I enjoy doing it.
Talking about it and doing it are different things btw.
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Originally posted by half View PostIts just hypothetical, food for thought, getting a better understanding of how stuff works. Yeah i over-analyse stuff, but its because I enjoy doing it.
Talking about it and doing it are different things btw.
I was directing my response to rossco the bean counters
pesonal approach
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Originally posted by iwik View PostGood for you
I was directing my response to rossco the bean counters
pesonal approach
Do you really want to fix this all for 5 years and it all come up for renewal at once? What if rates have jumped to 12% at 20/10/20?
If you have a reasonable amount of debt, is 4 loans really that much? I have seen lots of investors with 5 loans for $200k.
Spreading just means you have different loans coming up at different stages. So you are not hurt as much by timing.
- interest rates go down you win as you have some short term
- interest rates go up you win as you have some long term.
Another approach is to split in half. So have 50% short term, and 50% long term.
RossBook a free chat here
Ross Barnett - Property Accountant
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Also my approach would mean dealing with banks every 2 years!
If you have a reasonable amount of debt 0.5% is a lot. On $3 million for example $15,000 per year!
The other part of my advice in my blog was don't fix large amounts. From my speech about this topic, one investor is looking at changing his $3 million floating to fixed, which saves him $21k per year!
RossBook a free chat here
Ross Barnett - Property Accountant
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