Home loan - fixed or variable?
#16
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Re: Home loan - fixed or variable?
That sounds like a conflict of interest to me. Independent and commissioned?
#18
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Re: Home loan - fixed or variable?
If I take out a fixed loan, I am reducing my risk, but I pay a premium for that privilege. Whereas, if I take out a riskier variable loan, I can pay less.
So - if I need certainty over my loan repayments, and no risk, I will take out a fixed product.
Personally I do not need certainty over my repayments, so a fixed product is a waste of money for me. However, circumstances vary, from person to person.
Of course, if you are a gambling man (or woman) you might like to think that you can predict the direction of homeloan rates, and the trend. E.g. lets say that a variable rate = 5%, and a fixed rate for 3 years = 5.4%. If you believe that over the course of the next 3 years you will be paying > 5.4% on average over that period on a variable loan (perhaps you think that homeloan rates will rise) then you might select a fixed product.
But it is worth bearing in mind that a person's ability to take that kind of punt, has been severely hit by the GFC.
In any case, even if you "gamble" on the fixed rates and you win, the savings you make versus variable repayments (on a regular sized homeloan) will be pretty small.
So - if I need certainty over my loan repayments, and no risk, I will take out a fixed product.
Personally I do not need certainty over my repayments, so a fixed product is a waste of money for me. However, circumstances vary, from person to person.
Of course, if you are a gambling man (or woman) you might like to think that you can predict the direction of homeloan rates, and the trend. E.g. lets say that a variable rate = 5%, and a fixed rate for 3 years = 5.4%. If you believe that over the course of the next 3 years you will be paying > 5.4% on average over that period on a variable loan (perhaps you think that homeloan rates will rise) then you might select a fixed product.
But it is worth bearing in mind that a person's ability to take that kind of punt, has been severely hit by the GFC.
In any case, even if you "gamble" on the fixed rates and you win, the savings you make versus variable repayments (on a regular sized homeloan) will be pretty small.
#19
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Re: Home loan - fixed or variable?
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.
#20
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Re: Home loan - fixed or variable?
When the fixed period is over - it is time to review personal circumstances and see what is best going forwards.... Lets say I have 50% of my loan fixed for 5 yrs and 50% variable. Over that 5 years I'd be paying down the variable portion as much as possible. I'd be hoping that my salary would increase, at least in nominal terms....and I'd be hoping that homeloan rates did not go up significantly. So when the 5yrs is up, I might be in a position to go 100% variable.
ps - Deadvim I'm sure you know all that stuff already.... my comments were really just meant for scubaemma's info !!!
#21
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Re: Home loan - fixed or variable?
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
A slightly different option, is to just use a standard variable account, with no frills.... no fees, no interest rates, and no fees on redraws.
When you get paid - just transfer the balance into your standard variable account. The end result is the same. But the difference is, you don't have to pay the premium for the offset facility. I haven't looked at loans for a while so I don't know how big (or small) that premium is right now. Obviously, it varies between lenders.
One thing to note though, is that the offset facility does have its advantages in the world of tax deductions on property. More details are on the somersoft forums. Obviously this last point is only applicable to investment properties.
#23
Re: Home loan - fixed or variable?
Not in our case, the payment frequency on our loan is independent of when we are paid. We have weekly debits set-up to sub-accounts (internet banking, so no fees).
One debit syphons off the total repayments for both loans as soon as we are paid and another debit pays off the 2 loans as the repayments are due. This is made easier by having the loans and banking with the same institution, I suspect (it's all internet driven).
This means we never see the repayment amount in the 'living' account, I prefer this as we are not tempted to spend it.
Before my current 'career break' I was paid weekly and my OH was paid fortnightly ... now we have just rejigged the debits so everything stays in sync.
If it was a monthly salary then only the initial syphon amount would change, the loan repayments would still be fortnightly.
One debit syphons off the total repayments for both loans as soon as we are paid and another debit pays off the 2 loans as the repayments are due. This is made easier by having the loans and banking with the same institution, I suspect (it's all internet driven).
This means we never see the repayment amount in the 'living' account, I prefer this as we are not tempted to spend it.
Before my current 'career break' I was paid weekly and my OH was paid fortnightly ... now we have just rejigged the debits so everything stays in sync.
If it was a monthly salary then only the initial syphon amount would change, the loan repayments would still be fortnightly.
#25
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Re: Home loan - fixed or variable?
Wouldn't you be better off paying monthly as you receive the credit and not leaving the funds for the second debit languishing in your account costing you money?
#26
Re: Home loan - fixed or variable?
Plus, by paying fortnightly you effectively make one extra repayment a year.
I'm on holiday so I'm buggered if I'm doing the maths
#27
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Re: Home loan - fixed or variable?
I am prepared to be corrected but my belief was that if you compare fortnightly to monthly repayments in a loan calculator then the savings to be had would be far more than you could earn in interest in an average savings account, or indeed, in a higher interest sub-account.
Plus, by paying fortnightly you effectively make one extra repayment a year.
I'm on holiday so I'm buggered if I'm doing the maths
Plus, by paying fortnightly you effectively make one extra repayment a year.
I'm on holiday so I'm buggered if I'm doing the maths
#28
Re: Home loan - fixed or variable?
Only if you're paid fortnightly, as the cash would be going onto the loan as soon as you get it. By holding onto the second installment for a fortnight you are paying for that cash for an extra fortnight. If you are keeping it in a zero interest current account your paying the full rate of your mortgage interest for it. If you're keeping it in a high interest account then the cost is offset by interest earned, less tax.
So, as far as I can see, even if you are paid monthly then you should set the repayment period to fortnightly if you can afford to make the extra repayment.
I think ...
#29
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Re: Home loan - fixed or variable?
I think you'll find the discrepancy is that your employer enjoys the benefit of your cash-flow for an extra two weeks if you are paid monthly versus fortnightly. Fortnightly pays are hence more valuable than monthly pays for the same annual salary.
#30
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Joined: Jun 2007
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Re: Home loan - fixed or variable?
Perhaps a better way would be to have your pay credited directly to the mortgage account and have a monthly redraw from that account to cover the full amount of the credit card bill... (and REFUSE point blank to deal with any business or person that wont take credit cards! - we *NEED* those QFF points )