Interest Rates - Up Or Down ?

[ZAP]

The wife has found a place she wants us to buy, so it looks like I will be paying off a huge mortgage again

We will be borrowing a VERY large sum of money, but I am weighing up my options with interest rates.

We can get fixed for 10 years @ 8.95% or variable for 8.46%. Fixing for 5 years is 9.05% We can mix and match fixed and variable.

I am the type of person who wants to know how much they are paying, so I am tending towards 50-75% fixed for 10 years and the rest variable.

I would like to gain some of your opinions on if I should go fixed or not.

The price of fuel and the Labor government, makes me think that we are in for some serious intrest rates, but the economy is also going strong.

[ms700]

Id go 50 - 50, and that's the way I voted.

In 10 years, see where you are at, and refinance if necessary!

Can you pay off both - ie pay off the fixed portion each month, and if you have any coin left over, pay off some of the variable too?

I heard that the reserve bank will be bumping up the rate again next week.

[Dagabond]

Timely post Mal I'm going in next week to change over to a 5 year fixed loan.

I'll be interested to see the outcome...

[tmac450]

I'd lean towards 50:50.

With our current communist government in charge, rates are bound to rise. The economy is strong, but these clowns (and the clowns before) have allowed that to become our problem.

[Dillz]

I would never fix a loan for more than 3 years, as things can change rapidly in that time. I'm the same as you Zap I'd like to know exactly what my payments would be however most of the brokers we use are saying Variable is the way to go at the moment.

If it was me I would do a hell of alot of homework, work out how much you will pay for various fixed loans and also various variable loans then take your worst variable add 1-2% and see if you can still manage payments as a safe guard if sh*t hits the fan. You can never get enough advice from people in the business, speak to as many banks and brokers as possible then try and average out what they are telling you.

[smicky]

For me - it would have to be the 'lock it in Eddie'....

That way you know what your up for from word go... and I know what im up for and expecting to pay each and every day...

However 50:50 would be of consideration that way there could be some potential for it to balance out, but again it might go the other way...

Voted - fixed for 10, only cos im not a huge fan of surprises when it comes to finance...

I guess you need to ask yourself how long do you expect to stay in this new place, then base your decision on what suits best...

[groper]

ZAP are you nuts?

Unless your buying into a really good deal, I wouldnt be buying into realestate at all right now. IMHO, realestate price are about to take a tumble.

After the last 5 years of impressive realestate price increases, the interest rates have HAD to follow them up. If the realesate sales and new construction slows down (they certainly already have up here), im betting interest rates will come down to stimulate the market.

IMHO, the only worst thing someone could do right now besides buying a house, is buying a house AND fixing your rates!!!

Not only my opinion either, my house is for sale, and we will be down sizing with our new place, smaller mortgage, in preperation for the deepening credit crunch and an abundancy of cheap houses coming onto the market over the next 12 months or so.

Edited 27/05/08 03:47 AM by groper

[markxr6t]

hey ZAP

Definitely stick with variable for now. Consumer spending is showing signs of slowing, and whilst fuel food and housing will always go up, inflation should steady in the next year or two.

Because its in their own best interest (pardon the pun) banks are particularly good at predicting future interest rates. Look at their long term fixed rates - they aren't expecting the cost of money to increase dramatically and none of their fixed rates include you being better off than them.

I'm no seer, but I reckon rates will be between 8 and 10% for the next 5 years. As soon as banks see reductions in inflation and spending they'll reduce their long term rates effectively pre-empting RBA decisions.

I have significant debt at the moment and I'm variable all the way - the only fixed I'd touch is pre paying interest in advance for 1 year (about 8.4% now, but I did it June 30 last year at 7.1%!)

As soon as fixed rates are a % point or more below the best variable I can get, I'll consider fixing for 3 years maximum. In the 90s I fixed at 10% for 5 years thinking I was clever - but never again at that rate. Fixing at 6% for 5 years is clever, but that opportunity left us in 2005.

Definitely variable for now IMHO - you can always fix later.

And I also strongly believe that fixing for 10 years is madness. Remember the govt is talking about introducing legislation to stop banks charging huge fees when you re-finance? Imagine how easy refinancing could be in 5 or 10 years...

Just my opinion based on what I've done with my loans.

Mark

[Grudgee]

I can see the rates plateauing for a couple, then dropping in the short-term. The 5-year fixed is generally a guide as to the direction the rates will go though, so in 5, you should expect it to be somewhere around what the current 5 year rate is.

Sounds to me like you like security, so fix the bastard for 10, knowing that for 10 years, you know exactly what you're up for. As long as you can make the repayments over that time, you're guaranteed to have a stress-free 10 years. After 10 years, your property will be worth approximately double, so you'll be all set.

Go for it!

[markxr6t]

ZAP are you nuts?

Unless your buying into a really good deal, I wouldnt be buying into realestate at all right now. IMHO, realestate price are about to take a tumble.

After the last 5 years of impressive realestate price increases, the interest rates have HAD to follow them up. If the realesate sales and new construction slows down (they certainly already have up here), im betting interest rates will come down to stimulate the market.

IMHO, the only worst thing someone could do right now besides buying a house, is buying a house AND fixing your rates!!!

Not only my opinion either, my house is for sale, and we will be down sizing with our new place, smaller mortgage, in preperation for the deepening credit crunch and an abundance of cheap houses coming onto the market over the next 12 months or so.

I don't think it'll be that bad. We'll certainly be in a buyers market for a while, but there's an Australia wide housing shortage, people always need a roof over their head and their home is the one thing they're not willing to take a loss on. If they do sell it cheap, investors buy in and the sellers still have to live somewhere which drives up the rental market and hence investor activity.

This cycle coupled with record wages growth and reduced consumer spending (finally!) will maintain property prices.

Also, the top end of the market which I assume ZAP is talking about isn't as strongly affected by economic cycles. Here in Perth $1m+ property sales are sailing along like nothing has happened to interest rates and economic growth. Nice houses in unique locations always have been and always will be in short supply and those with $ buffer themselves against economic downturns.

Edited 27/05/08 03:59 AM by markxr6t