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What’s better: Fixed rate or variable rate home loan?

ACTResident 22 July 2015 65

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I am going to borrow home loan from the bank and have three options: fixed rate, variable rate and half and half.

Would you please advise here what option I should take. You are welcome to comment on ‘owner occupier’ or ‘investment’, and three different options because your comment may benefit others even if it does not directly apply to my situation.

My idea is to fix the rate as I see the interest is very low now, but who knows it might go further down. I do believe we have economists out there.

Thank you for your comments and sharing ideas.


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What’s better: Fixed rate or variable rate home loan?
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vintage123 5:50 pm 24 Jul 15

Ezy said :

vintage123 said :

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

Interesting, and thank you for the explanation – but given the information you are getting, the only people that would see this as a 650k block are those developer types. General Joe Public (me) look at this as and compare it to a similar house that sold in this street a few months back for 505k. To be honest, I haven’t seen many houses jump in value significantly over the last few weeks. If anything, they are the same as a few months ago.

The problem for me at this stage is lack of homes that offers good bang for buck renovation/extension potential. This particular home for me isn’t one I am interested in due to the way the house is skewed on the block. I have already sketched out a few extension ideas and what I had in mind wouldn’t be achievable due the building encroaching 1.5 metres from the boundary.

http://www.realestate.com.au/property-house-act-weston-120042137

vintage123 5:47 pm 24 Jul 15

chewy14 said :

vintage123 said :

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

Really?

I think your suggestion doesn’t have a snowball in hell’s chance of getting through.

If they allow subdivision of all blocks down to 700m2, they might as well throw away the territory plan altogether. How could they possibly meet their other planning requirements in these older areas if they make such a wholesale change?

I am happy to have a bet on it. Let me know the wager.

I have had 40 developers through the office in the last two weeks.
http://www.news.com.au/finance/real-estate/uks-shared-ownership-scheme-could-it-work-in-australia/story-fndban6l-1227453412448

chewy14 5:01 pm 24 Jul 15

vintage123 said :

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

Really?

I think your suggestion doesn’t have a snowball in hell’s chance of getting through.

If they allow subdivision of all blocks down to 700m2, they might as well throw away the territory plan altogether. How could they possibly meet their other planning requirements in these older areas if they make such a wholesale change?

Ezy 4:35 pm 24 Jul 15

vintage123 said :

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

Interesting, and thank you for the explanation – but given the information you are getting, the only people that would see this as a 650k block are those developer types. General Joe Public (me) look at this as and compare it to a similar house that sold in this street a few months back for 505k. To be honest, I haven’t seen many houses jump in value significantly over the last few weeks. If anything, they are the same as a few months ago.

The problem for me at this stage is lack of homes that offers good bang for buck renovation/extension potential. This particular home for me isn’t one I am interested in due to the way the house is skewed on the block. I have already sketched out a few extension ideas and what I had in mind wouldn’t be achievable due the building encroaching 1.5 metres from the boundary.

blandone 4:25 pm 24 Jul 15

vintage123 said :

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

I think you’re way off, i reckon $550k-$575k – keen to see how it goes.

vintage123 3:57 pm 24 Jul 15

Hosinator said :

We fixed for 12 months at 3.75% on our primary residence home loan. We went through a credit union and won’t be going back to the big banks anytime soon. The best our current lender at the time could do was a 0.01% drop to 4.2 on a variable loan.

Seek out credit unions or second tier banks, don’t bother with the big 4.

Which building society?
What was the fixed term?
What is the comparative rate?
Was there an application fee?
Did you pay for a valuation?

vintage123 3:52 pm 24 Jul 15

Ezy said :

Yup – exactly what I thought. Thats a very generous price.

Unfortunatley it will go between 625k and 650k. They would probably accept a pre auction offer of 650k.

The reason the prices have risen quickly in weston creek is due to the fluffy saga.

To be blunt, there has been considerable lobbying occurring behind the scenes regarding the rezoning of the fluffy blocks, and the precedence this sets for the unaffected blocks in the same streets and suburbs.

Developers have basically lobbied to say, we won’t touch them unless you allow unrestricted rezoning of the whole suburb, and green light seperate title subdivisions on 700m2 blocks.

So more than likely, once the governments works out that they will cash in considerably under a comple rezoning arrangement, the decision will be made to allow anyone to subdivide as long as the block is over 700m2, and they will be able to apply seperate title.

Therefore, anywhere near a cluster or in the general suburb currently on the market over 700m2 is considered desirable for those wishing to land bank or develop in the future.

Like I have said before, if you want to live in the area, grab something sooner rather than later, as prices are on the up.

Ezy 2:40 pm 24 Jul 15

Yup – exactly what I thought. Thats a very generous price.

blandone 2:14 pm 24 Jul 15

vintage123 said :

vintage123 said :

vintage123 said :

Ezy said :

All of this talk is unsettling for me as I am looking to purchase a property to live in.

If only I had a crystal ball to look into the future and see if any of this housing bubble bursting, recession, interest rates rocketing up etc will happen. I might look at renting for a while to see if any of this plays out.

Ezy, for gods sake, hurry up and buy something in the woden valley. Its getting hot out there, and it is only going to get hotter. As for your loan, follow my advice at point one.

I meant to say weston creek. Bid to $650k on this one. http://www.dailytelegraph.com.au/news/nsw/taxpayers-footing-bill-on-treasurer-joe-hockeys-15-million-canberra-house/story-fni0cx12-1227026624945

As for the future, RBA cash rates are going down, however big four will be a bit stingy on passing the full cut on until they satisfy APRAs capital requirements.

Sydney is already gone and won the race to a medium price of $1m, Melbourne is next, followed closely by Canberra and Brisbane. Perth will take a bit of work and Adelaide, Darwin and tassy will take a long time.

What will drive Canberra prices, people from Sydney and Melbourne who are pushed out due to price. Whats going to drive people from Sydney and Melbourne. Chinas financial deregulation and the mandate to invest $17 trillion, yes trillion dollars overseas for diversity.

The other point is the recent changes to the Significant Investment Visa Scheme. Government has jigged it to enhance Australias venture capalists through the Small Caps market. This will feed the services industry in areas such as education, training, accounting and IT. Then you have dairy and beef. 560 million middle class of the 1.35 billion chinese population are being westernised and want to be cool drinking $10 a litre milk and $50 a kg steak. Then theres the lack of baby formula etc etc

God three hours of sleep is catching up on me, i meant this link, bid $650k on this house.
http://www.allhomes.com.au/ah/act/sale-residential/5-souter-place-weston-canberra/1317075630711

$650k? I’m not sure if you’re pulling my leg or not..

Hosinator 10:44 pm 23 Jul 15

We fixed for 12 months at 3.75% on our primary residence home loan. We went through a credit union and won’t be going back to the big banks anytime soon. The best our current lender at the time could do was a 0.01% drop to 4.2 on a variable loan.

Seek out credit unions or second tier banks, don’t bother with the big 4.

rosscoact 8:10 pm 23 Jul 15

vintage123 said :

rosscoact said :

MarkE said :

Here is a question for everyone: What do interest rates have to rise to before your mortgage bankrupts you?
The Australian RBA is nothing more than a bit player in the interest rate world.

I’m in the fortunate position of not having a mortgage but had one through the late 80s so I know what 17% looks like and it’s not pretty. The effect is that it pushes house prices down as people get out of mortgages. Arguably a good thing in these times.

Um rossco, I dont really want to open a can of worms here, but 1989 rate of 17% is not a one to one comparision with today. WHY? Because because that was the nominal interest rate in a time of 8% inflation. Real rates is the accounting term, which factors in inflation. The 1989 real rate was 9%

Todays nominal rate is around 6.5% and inflation is around 2.5%, so the real rate is around 4%. When you then factor in the biggest difference between now and 1989, that is two incomes versus one, the households capacity to repay the loan doubles the actual real rate to 8%.

So the reality is that the ballpark has changed and the biggest factor is the dual incomes ability on affordability. In this context 1989 real rate adjusted per income is 9%, today it is 8%. So today it feels exactly the same for two people servicing a mortgage as it did for one during the so called nominal 1989 17% period.

Thats interesting isnt it?

Wow, I hadn’t realised that. That does provide some perspective. I feel sorry for them now. Our mortgage was considerably less as a percentage of our wages too. I think we were looking at 1.5 of our household income in our mid twenties.

Lots of stress indeed.

Nice work and thanks.

vintage123 4:11 pm 23 Jul 15

vintage123 said :

switch said :

vintage123 said :

So today it feels exactly the same for two people servicing a mortgage as it did for one during the so called nominal 1989 17% period.

Thats interesting isnt it?

So are we going to have to legalise 3,4,5… person marriages soon to cope with the ever-increasing cost of homes?

Yep. Or rally around the concept of purchasing power whereby you purchase only a part in a property. This has caught on in other places and it is gaining some traction here in Australia.

Or we have a huge increase in our salaries, but i cant see that happening.

At the end of the day it is going to be very hard to compete with so many other people who have so much more money than the average young Australian.

Sharing like this
http://www.news.com.au/finance/real-estate/uks-shared-ownership-scheme-could-it-work-in-australia/story-fndban6l-1227453412448

vintage123 3:50 pm 23 Jul 15

switch said :

vintage123 said :

So today it feels exactly the same for two people servicing a mortgage as it did for one during the so called nominal 1989 17% period.

Thats interesting isnt it?

So are we going to have to legalise 3,4,5… person marriages soon to cope with the ever-increasing cost of homes?

Yep. Or rally around the concept of purchasing power whereby you purchase only a part in a property. This has caught on in other places and it is gaining some traction here in Australia.

Or we have a huge increase in our salaries, but i cant see that happening.

At the end of the day it is going to be very hard to compete with so many other people who have so much more money than the average young Australian.

Ezy 3:44 pm 23 Jul 15

vintage123 said :

Ezy said :

All of this talk is unsettling for me as I am looking to purchase a property to live in.

If only I had a crystal ball to look into the future and see if any of this housing bubble bursting, recession, interest rates rocketing up etc will happen. I might look at renting for a while to see if any of this plays out.

Ezy, for gods sake, hurry up and buy something in the woden valley. Its getting hot out there, and it is only going to get hotter. As for your loan, follow my advice at point one.

Yeah, i’m trying… i’m trying!

Our past loan we had a variable and fixed, we smashed the variable loan as much as we could. Worked well for us then, so we are going to do it again when the right house comes along.

Hey – are you able to shoot an email through to ezyonriot@gmail.com so I can discuss real estate with you? I wouldn’t mind someone partial to run a few things past. Thats if you don’t mind of course.

switch 3:34 pm 23 Jul 15

vintage123 said :

So today it feels exactly the same for two people servicing a mortgage as it did for one during the so called nominal 1989 17% period.

Thats interesting isnt it?

So are we going to have to legalise 3,4,5… person marriages soon to cope with the ever-increasing cost of homes?

vintage123 3:15 pm 23 Jul 15

vintage123 said :

vintage123 said :

Ezy said :

All of this talk is unsettling for me as I am looking to purchase a property to live in.

If only I had a crystal ball to look into the future and see if any of this housing bubble bursting, recession, interest rates rocketing up etc will happen. I might look at renting for a while to see if any of this plays out.

Ezy, for gods sake, hurry up and buy something in the woden valley. Its getting hot out there, and it is only going to get hotter. As for your loan, follow my advice at point one.

I meant to say weston creek. Bid to $650k on this one. http://www.dailytelegraph.com.au/news/nsw/taxpayers-footing-bill-on-treasurer-joe-hockeys-15-million-canberra-house/story-fni0cx12-1227026624945

As for the future, RBA cash rates are going down, however big four will be a bit stingy on passing the full cut on until they satisfy APRAs capital requirements.

Sydney is already gone and won the race to a medium price of $1m, Melbourne is next, followed closely by Canberra and Brisbane. Perth will take a bit of work and Adelaide, Darwin and tassy will take a long time.

What will drive Canberra prices, people from Sydney and Melbourne who are pushed out due to price. Whats going to drive people from Sydney and Melbourne. Chinas financial deregulation and the mandate to invest $17 trillion, yes trillion dollars overseas for diversity.

The other point is the recent changes to the Significant Investment Visa Scheme. Government has jigged it to enhance Australias venture capalists through the Small Caps market. This will feed the services industry in areas such as education, training, accounting and IT. Then you have dairy and beef. 560 million middle class of the 1.35 billion chinese population are being westernised and want to be cool drinking $10 a litre milk and $50 a kg steak. Then theres the lack of baby formula etc etc

God three hours of sleep is catching up on me, i meant this link, bid $650k on this house.
http://www.allhomes.com.au/ah/act/sale-residential/5-souter-place-weston-canberra/1317075630711

vintage123 3:10 pm 23 Jul 15

rosscoact said :

MarkE said :

Here is a question for everyone: What do interest rates have to rise to before your mortgage bankrupts you?
The Australian RBA is nothing more than a bit player in the interest rate world.

I’m in the fortunate position of not having a mortgage but had one through the late 80s so I know what 17% looks like and it’s not pretty. The effect is that it pushes house prices down as people get out of mortgages. Arguably a good thing in these times.

Um rossco, I dont really want to open a can of worms here, but 1989 rate of 17% is not a one to one comparision with today. WHY? Because because that was the nominal interest rate in a time of 8% inflation. Real rates is the accounting term, which factors in inflation. The 1989 real rate was 9%

Todays nominal rate is around 6.5% and inflation is around 2.5%, so the real rate is around 4%. When you then factor in the biggest difference between now and 1989, that is two incomes versus one, the households capacity to repay the loan doubles the actual real rate to 8%.

So the reality is that the ballpark has changed and the biggest factor is the dual incomes ability on affordability. In this context 1989 real rate adjusted per income is 9%, today it is 8%. So today it feels exactly the same for two people servicing a mortgage as it did for one during the so called nominal 1989 17% period.

Thats interesting isnt it?

vintage123 2:54 pm 23 Jul 15

vintage123 said :

Ezy said :

All of this talk is unsettling for me as I am looking to purchase a property to live in.

If only I had a crystal ball to look into the future and see if any of this housing bubble bursting, recession, interest rates rocketing up etc will happen. I might look at renting for a while to see if any of this plays out.

Ezy, for gods sake, hurry up and buy something in the woden valley. Its getting hot out there, and it is only going to get hotter. As for your loan, follow my advice at point one.

I meant to say weston creek. Bid to $650k on this one. http://www.dailytelegraph.com.au/news/nsw/taxpayers-footing-bill-on-treasurer-joe-hockeys-15-million-canberra-house/story-fni0cx12-1227026624945

As for the future, RBA cash rates are going down, however big four will be a bit stingy on passing the full cut on until they satisfy APRAs capital requirements.

Sydney is already gone and won the race to a medium price of $1m, Melbourne is next, followed closely by Canberra and Brisbane. Perth will take a bit of work and Adelaide, Darwin and tassy will take a long time.

What will drive Canberra prices, people from Sydney and Melbourne who are pushed out due to price. Whats going to drive people from Sydney and Melbourne. Chinas financial deregulation and the mandate to invest $17 trillion, yes trillion dollars overseas for diversity.

The other point is the recent changes to the Significant Investment Visa Scheme. Government has jigged it to enhance Australias venture capalists through the Small Caps market. This will feed the services industry in areas such as education, training, accounting and IT. Then you have dairy and beef. 560 million middle class of the 1.35 billion chinese population are being westernised and want to be cool drinking $10 a litre milk and $50 a kg steak. Then theres the lack of baby formula etc etc

vintage123 2:33 pm 23 Jul 15

Ezy said :

All of this talk is unsettling for me as I am looking to purchase a property to live in.

If only I had a crystal ball to look into the future and see if any of this housing bubble bursting, recession, interest rates rocketing up etc will happen. I might look at renting for a while to see if any of this plays out.

Ezy, for gods sake, hurry up and buy something in the woden valley. Its getting hot out there, and it is only going to get hotter. As for your loan, follow my advice at point one.

Grrrr 1:33 pm 23 Jul 15

The strongest reason for choosing Fixed is that it offers certainty about repayment amounts – but the cheapest Fixed rate is unlikely to be much cheaper over the long run than Variable from the same institution.

The lenders have to make a certain amount of profit from a loan, and that ensures fixed is pretty much nevercheaper.

Cheapest is almost always going to be variable loan with offset account, minimal fees / no penalties, and from an institution offering lowest rates. (IE: Not the big banks.)

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