Scubaemma

We've been here a couple of years now and are ready to buy our first house. This is one of the occassions I miss having my family around to ask random questions for advice! So I'll ask you guys instead....

Would we be better off looking at getting a fixed or variable rate, with things as they are now?

We know we would want to over-pay our repayments to try and pay the home loan off a bit quicker (we may as well while OH is earning decent money). I know with the home loans we're looking at we won't be penalised for over-paying. But one of the other things we need to decide on is whether we want re-draw access to additional funds we deposit? Is that a good feature to have?

Thanks for any advice. I hate having to make decisions on this stuff when I feel like I don't know what I'm doing!

spottydog

All the variables depend on your circumstances. It would probably be a good idea for you to see a good independent mortgage adviser (they generally don't cost anything as they get referral fees from the mortgage provider).

KJCherokee

Interest rates are unlikely to go down in the forseeable future, and a report in today's paper suggests that the banks will increase by more than the official rise next time. So as long as your fixed rate isn't more than 0.25% above the variable rate then fixing may be a good idea.

But I'm no expert, so don't take my word for it!

DeadVim

We have both, 60% fixed, 40% variable ... the variable can be paid off at any time and we can make extra payments with no penalty.

So, any extra cash goes straight off of that. It also has redraw which we used to buy the car and makes where to put spare dosh a no-brainer.

Top tip ... pay fortnightly, not monthly, the savings are huge.

Paying off the variable is our top priority ... no need to give the bank more than necessary

Obviously if you can pay more than the minimum (on the variable) then this is a Very Good Thing as compound interest reduces the term by a hell of a lot.

Swerv-o

My GF has been looking at fixing part of her mortgage. It looks like [at the moment] the fixed rates are significantly higher than the variable rates, so you start off paying more than you would on a variable rate, but obviously have the comfort of knowing that the rate can't go any higher for the duration of the fix.

My current variable rate is 6.19%, and the closest fixed rate (for 12 months) is 7.24%, so it's swings and roundabouts as to whether to fix now and pay more in the short term, or maintain the variable and run the risk of there being four rate rises over the course of the next year.

Another thing to consider too is what happens if you decide that you need to sell during your fixed term. Anecdotal evidence of other posters [and personal friends] suggests that it's much more expensive to extract yourself from a fixed rate mortgage than it is from a variable one.

In the end, I went for a variable mortgage with a transaction offset account - I get my pay paid into the offset, so it immediately starts working for me by offsetting some of the interest. I live on my credit card for the month, then pay the whole balance at the end of the month, essentially using the bank's interest free period on CC purchases instead of my own money. Because my pay has gone into the account, any left over at the end of the month is automatically used to offset the interest, but is still always there if I need to access funds in a hurry with no re-draw fees. The savings on interest are huge - usually of the order of $2500 a quarter, which really mounts up over the term of a mortgage.


S

sammyg

This is what we do too -works for us
We also pay fortnightly and overpay so if you can do all of these things (overpay/fortnightly/offset wages/spend everything on CC) you have some big savings stacking up.

We are currently on a 'discounted' variable rate - 0.7% below variable with Westpac (rocket repay) but pay $395 per year for this discount.

Also, Westpac have a rewards program (altitude) where you can redeem your points earned through spending on your CC.

We've just used 2 years worth and got nearly 2 grands worth of David jones vouchers - not bad for free? (should be a yearly fee but they'll waive it if you phone them up) and the points add up fast as you put everything on your CC using this system.

This prob isn't the most competitive home loan but with these features we are happy with it. It had very low set-up costs too.

Stu

Swerv-o

Yes, good point about paying fortnightly. I actually managed to get mine as interest only payments for the first 5 years, so this is of no benefit to me at the moment, but if you want to start chipping away at the capital, then fortnightly payments are a real benefit.

Your package sounds suspiciously like mine - there are a host of benefits that come free (well, free with the yearly charge of $300 odd) like a Gold credit card, reward points, membership, free travel insurance etc.

Mine was with Citibank.


S

DadAgain

Variabl v Fixed.

the rate on fixed loans is calculatd by banks based on their predictions of what the variable rate is liekly to do over the course of the fixed term. They will factor in a small percentage for their profit, and a small percentage for their shouldering the risk that rates will climb and they'd lose out.

The question then, is are you confident that you can predict interest rates over any given period better than the team of professionals the bank employes to do just that? If so AND you think rates are going to climb beyond that required to make the fixed rate look attractive then do it - fix. If not - why gamble against the bankers?

discobay

Is redraw to do with taking out funds up from your mortgage account where the current balance is less than the original loan amount? Is this what a lot of people do rather than taking out personal loans?

I have a small stash of cash and have been wondering if it is better to make an overpayment to the mortgage account or hold on to it for a rainy day? I guess if I do the former I could always make a redraw right?

ABCDiamond

Yes. If you have a redraw facility, you should place any excess funds in that account, or a 100% offset account, for the purpose of reducing your interest.

This is very common, and MUCH preferable to a personal loan.

discobay

If I transfer GBP from my UK savings will I be taxed by the ATO?

DeadVim

My redraw (cashback) allows me to take any 'extra' repayments back, so it's not the original loan amount, just anything we have overpaid.

This is what we did with buying the car, made sure we were paying extra so we had the cash when the time came.

If your loan allows this then that is where I would stick any cash going spare.

Bear in mind that some banks will charge for a redraw and may limit the number you can make in any given month/year/whatever their sick minds dream up.

Scubaemma

Thanks very much for your replies guys, I appreciate it. Certainly given us a few things to think about.

We're likely to get the home loan through Queensland Police Credit Union (seems to be competitive) so it's just working out which of the options we prefer (fixed/variable). Def like the idea of the redraw facility thought.

Thanks

Cheetah7

We are variable and over pay on it but although I know the rates will continue to rise, a bit of me is upset that it wont be paid off as quick.

Ive thought about doing a bit of both but at the moment will stick with Variable I guess.

Wish I could win the bloody lotto and say to the bank 'here you go my love, keep the change'

KJCherokee

I don't think so, as long as all the required UK tax has been paid.