REFIX

Fixed vs Floating: Negotiation and Hedging Bets

Interest rates are up on where they were six months ago. So is there still wiggle room for negotiating them down? Brendon explores and gives his fixed vs. float synopsis.

 

A good interest rate very much depends on the deal you have. So to explain what might be a “good interest rate” in today’s climate let’s paint a picture based on averages …

Assuming your loan is of an average size (say $400k) and you have at least 20 per cent deposit/equity then a good floating rate is around five per cent. A good one-year rate is around 4.5 per cent (maybe just under), a good two-year rate is around 4.75 per cent and three-year rate around 5 per cent.

In short, rates are now around 0.5 per cent higher than their low in November 2016.

Plus, right now we are noticing quite significant differences between banks in terms of their willingness to negotiate rates. To be fair, most aren’t negotiating. They are very much in a “protect their asset” mode rather than “grow their book of mortgage” mode.

The cheapest rate is the one-year rate, however, taking this rate will expose you to a higher rate in a year’s time when you’ll need to re-fix. Many of our clients are therefore taking a higher rate but having more certainty for two or three years or even longer.

In most situations, I recommend my clients have at least some flexibility, by putting some of their mortgage on a form of floating rate (be it standard floating, revolving credit or offset) and then having the rest fixed. Some are hedging their bets by having a portion of their debt fixed for a year and the remainder fixed for three years, as an example.

As I always say, everybody’s situation is different. So all the specific factors of your position need to be taken in to account. Getting this sorted for you is part of what your friendly Velocity adviser can help with. So don’t hesitate to ask for our assistance on getting your home loan set up in a way that is best for you.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

About to Re-Fix Your Loan?

Don’t just take the “Click Button” approach to re-fixing your mortgage, there could be better options out there, says Brendon. 

A month-or-so before it's time to re-fix your loan, you will receive a letter or email from your bank asking if you want to re-fix your home loan. Banks are becoming more and more aggressive in this phase and some are providing discounted interest rates on the spot. They will often give you an option to simply click a button to accept a rate and it is all done.

 

While this is obviously a really simple option, we strongly advise clients to talk to us before doing this.

 

Currently, the banks aren’t giving us the ability to click a button on your behalf if you wish to re-fix your loan through us—a form and an email trail is involved. However, what we can do is give you advice. We will review how your loan has been going over the last year and have a conversation around the next two or three years to make sure your loan is still working best for you.

 

On some occasions it is just a matter of accepting the best rate. However, most of the time there will be a conversation to be had around your strategy. Very often we will change the structure of your loan to meet any changes in your life situation or make some tweaks to your current mortgage.

 

At Velocity, our job is to give you advice and to make sure your mortgage is designed to your specific needs. We are a little disturbed that banks do not even give the pretence of offering this sort of advice at mortgage re-fix time. The bright side to this is, of course, that the value of having a good mortgage adviser to call on is given even greater emphasis.

 

So please, before you click that button, give us a ring so we can make sure you finish up with the best mortgage arrangement for you.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.