How long should I fix my home and investment loan interest rates

[kjoshi]

Hi, this might be a re-occuring question but I will ask it anyway since I am at this cross-road at the moment.

I have home loan 500k + and investment loan 300K+ both are on floating at the moment. Question is how long should I fix both of them for considering short and long term interest rates are very low.

I can get:

Term: 6 months | Rate Offered: 4.80%
Term: 12 months | Rate Offered: 4.35%
Term: 18 months | Rate Offered: 4.45%
Term: 24 months | Rate Offered: 4.45%
Term: 36 months | Rate Offered: 4.75%
Term: 48 months | Rate Offered: 4.99%
Term: 60 months | Rate Offered: 5.09%

From the experienced people in this forum what should be the best strategy for both loan.

Thanks in advance for your answeres.

[Wayne]

get a better 6 month rate - much closer to(if not the same as) the 1yr - and fix for 6 months.
Have a look at this thread

http://www.propertytalk.com/forum/showthread.php?192-Interest-Rates/page421

[Damap]

Not great rates get better loans. You can get 60 months at 4.89%.

[kjoshi]

Thanks guys. I moved from another bank to ASB with cash back few months ago. But kept all my loans to floatings as rates were going down. I have to be with bank for at-least 18 months. Bank knows that so they aren't offering me better rates I think.

[Rosco]

Hi kjoshi,

My approach / spreading approach.

- Small floating on personal home, being amount that you think you can pay off over next 12 months
- $260k approx 1 year 4.35%, short term
- $260k approx 2 or 3 years, probably 4.75%
- $260k approx 5 years 5.09%

Average of fixed term loans 4.73%. This follows the old saying 'don't put all your eggs in one basket'.


Another approach mentioned on 'interest' thread on Property Talk, which isn't too bad. Fix all for 5 years, as it is an extremely good long term rate. Risk is that in 5 years, you could have all loans come up at the same time, and all your interest costs jump!


Aggressive approach - Fix for 6 months, and hope that interest rates go down / stay down. With your figures the 6 month cost is a bit high, and actually gives you a higher interest cost than the spreading approach above. You could try this with 1 year rate, but you risk missing the move in the market and being too late to react.

Ross

[kjoshi]

Thanks Rosco for your advise.

I am actually looking for people like you who can mentor me in property investment. Do not any one who gives thats sort of coaching. Due to inexperience and lack of local market I ended up buying property in Nawton. Hopefully its not that bad since inferior property near by are sold for more than what I paid. But in future I do not want to go alone and take that risk.

[mortgage broker]

Most of those rates could be improved on. I think Rosco's advice is on the assumption that you don't have any other lending.

[kjoshi]

Yes Hamish I will try with my broker to push for better rates (which I should not need to-they should just try to get best rates by default), but as I explained above I can not move banks at the moment.

[rocket]

I have seen that the interest rate that mortgage brokers bring in are worse than what this forum discusses. Can you advise if its better to try the bank with out a broker.? Are the brokers best to be used when your own financial situation is not good & u still want a loan.
Bank reduces your profit to pay the broker. But I may be wrong.
Please clear my dilemma.

[AlFa]

I got quite good rated from BNZ talking with them directly. Kiwibank offered slightly worse but I ran them past my broker and he confirmed they are Ok

[Wayne]

Aggressive approach - Fix for 6 months, and hope that interest rates go down / stay down. With your figures the 6 month cost is a bit high, and actually gives you a higher interest cost than the spreading approach above. You could try this with 1 year rate, but you risk missing the move in the market and being too late to react.

Obviously you have 2 chunks to play with.
You would be better with 3 - split the $500k into 2x $250k.
I am currently a proponent of what Rosco thinks is the aggressive strategy.
Which isn't really so aggressive.
If you have 3 loans fixed for 6 months but staggered (say 2 months apart) then, if the rates suddenly jump up, you can fix one of them for longer within 2 months.
If rates go down further then in 2 months you will be able to fix one of them lower for another 6 months.
You won't get the lowest rate long term but you won't be paying more now either.

Of course others feel all this time spent on the mortgage is a waste and they may be right.
A lot depends on how much it worries you and how you value your time - emails to your bank don't really take a lot of time.

PS - if you can't get a better 6 month rate than what they have offered then I'd probably take the 12 month.
In the end the difference between the 6 and 12 month rate is $3600 over a year - a few cups of coffee in that!

[primal]

I have $330k offset mortgage
$280k on interest at 5.4%
$50k on principle at 5.4%.
Both variable rate are discounted and fixed till next September.

[The_Dog]

Don't forget, you can always break a fixed interest loan.

I recently broke a whole lot of loans, it cost me $5,000. A lot, yes, but it saved me $15,000 over a 1 year period.

So if you fix for 6 months, or a year, and rates go down, down be afraid to break it and fix for (say) 5 years on a super low rate if the opportunity arises. Crunch the numbers.

I prefer to deal with the banks directly. Build up a relationship. I am also willingly in the 'One-Bank-Trap' which many people advise against. It works for me. I display loyalty to the bank, and they treat me as a 'Big Player' because I have sizable loans with them. I get offered at least 0.6% off the rate displayed on the Bank website, and that's without any negotiating.

Phone the bank. You don’t get if you don’t ask.

[Wayne]

So if you fix for 6 months, or a year, and rates go down, down be afraid to break it and fix for (say) 5 years on a super low rate if the opportunity arises. Crunch the numbers.

Unless, of course, an even better super low rate comes along 6 months later.

[The_Dog]

That doesn't change my answer... Crunch the numbers.