To Fix or Not to Fix?

[~Kimba~]

I have an ING Workplace Loan which gives me 0.1% off the interest rate for the life of the loan and no fees amongst other things. Our rate was 6.64% (!) when we started the mortgage back in 2005 and we decided to go with the Mortgage Simplifier which is a variable loan. Since then interest rates have gone down (once) and up several times and every time a rate rise is announced I wonder if I should switch to a fixed rate instead. The fixed rate is always higher than the variable rate (obviously) so I have always told myself 'it would take 2 more rate rises before it would get that high', so just decide to stay with the variable rate.

That was fine for a while but of course we've had so many rate rises that our variable rate is now 7.55% and I'm kicking myself for not fixing it when the fixed rate was much lower, we could have still been paying 6.8% or so, I feel like an idiot now.

Should we just bite the bullet and fix it now to protect against further rises, or is it always better to stay with a variable rate?

I also want to find out about options for reducing repayments while on maternity leave. ING originally told me that i had that option (when I first shopped around for the loan), but when it came to the crunch they told me that we could halve my repayments for the maternity leave period ONLY if we had sufficient money in the redraw to cover the difference. Which essentially made it pointless as that's what I was doing anyway (putting a lump sum in at the start of Mat Leave, to cover the repayments), so I was still paying the same amount each month IYKWIM, which didn't help me at all. Next time I go on maternity leave I want to be able to 'properly' reduce our repayments to ease the financial load for 12 months, are there lenders that will do this? I'm wondering now if ING actually would have and if I misunderstood what they meant...?

Finally with regards to refinancing. I want to consolidate some debts (credit cards, car loan etc), we've had our mortgage for 2 years, is this enough time to have gotten enough equity in it to refinance, or should we wait a bit longer?

thanks in advance! :)

[andie_pandie]

Hi Kimba

Thanks for your question, I can see why you are concerned and particularly as your loan was at a great rate a year ago, yes they have gone up since Aug last year .75%.

It is always good in hindsight to think what if, however you are not the only one to wait and see. But please do not feel like a idiot, if only I purchased a couple more properties in the Boom I find myself saying quite often.

With variable loans there always will be up and downs. And generally at the present time they are pretty average historically. However saying that, it is hard to know what is going to happen with the rates. There are several things happening at the present time, one we are coming up to a election, two the nation is still spending more than it should and bad debt is at a high level.

I am finding a lot of people are seriously considering fixing as they are uncertain of the volatility. The fixed rates are a little higher than the variable at present but only by about .25% it would take only one more variable increase by the reserve bank to match the current fixed rates.

If you do choose to fix please make sure that if you intend on refinancing after the fixed starts you may have a penalty to get out of the fixed product, likewise if you sell within that period.

Something that a few people are unaware of is that the fixed rates are not based off the reserve bank. The banks can move the fixed rates at any time, that is why they move up and down quite frequently.

If you are looking at a fixed product, please make sure that you are happy with the rate that you fix it at as if the variable does decrease you may feel let down if you have fixed and you were previously variable and it does go below the fixed rate.

With regards to reducing payments for such things as Maternity Leave, with some banks you can make a sizable ($9K) deposit then they will drop the repayments accordingly, however some banks no matter how much you place into a variable they will keep the repayments the same. With most banks if you have a sizable amount in redraw you can do a principal reduction and this basically gets rid of the advance payments so it looks like it never existed and then the home loan repayment is reduced to whatever the current balance is after the reduction.

Some banks allow you to use your advance payments as repayments for the loan, hence when the interest and principal becomes due it automatically takes the repayments out of the advanced payments. Please note each bank is different.

With regards to refinancing if you want me to look at this for you I will need to ask more specific questions re value of house, loan amounts, income etc. If you would like to PM me to discuss further I am more than happy to assist.

Sorry about the long post, you had a couple of questions and hopefully I have made it easier for you to review your options.

Regards


Andrea





I have an ING Workplace Loan which gives me 0.1% off the interest rate for the life of the loan and no fees amongst other things. Our rate was 6.64% (!) when we started the mortgage back in 2005 and we decided to go with the Mortgage Simplifier which is a variable loan. Since then interest rates have gone down (once) and up several times and every time a rate rise is announced I wonder if I should switch to a fixed rate instead. The fixed rate is always higher than the variable rate (obviously) so I have always told myself 'it would take 2 more rate rises before it would get that high', so just decide to stay with the variable rate.

That was fine for a while but of course we've had so many rate rises that our variable rate is now 7.55% and I'm kicking myself for not fixing it when the fixed rate was much lower, we could have still been paying 6.8% or so, I feel like an idiot now.

Should we just bite the bullet and fix it now to protect against further rises, or is it always better to stay with a variable rate?

I also want to find out about options for reducing repayments while on maternity leave. ING originally told me that i had that option (when I first shopped around for the loan), but when it came to the crunch they told me that we could halve my repayments for the maternity leave period ONLY if we had sufficient money in the redraw to cover the difference. Which essentially made it pointless as that's what I was doing anyway (putting a lump sum in at the start of Mat Leave, to cover the repayments), so I was still paying the same amount each month IYKWIM, which didn't help me at all. Next time I go on maternity leave I want to be able to 'properly' reduce our repayments to ease the financial load for 12 months, are there lenders that will do this? I'm wondering now if ING actually would have and if I misunderstood what they meant...?

Finally with regards to refinancing. I want to consolidate some debts (credit cards, car loan etc), we've had our mortgage for 2 years, is this enough time to have gotten enough equity in it to refinance, or should we wait a bit longer?

thanks in advance! :)