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Fixed vs variable?

Discussion in 'Finance & Banking' started by RetireSooner, 15th Sep, 2005.

  1. RetireSooner

    RetireSooner New Member

    17th Aug, 2005
    I noticed that Westpac have reduced their fixed interest rates to 6.49% for 3 years and 6.99% for anything up to 10 yrs.

    As the 3 yr rate is significantly below current variable rates it got me thinking about whether I should look at fixing a proportion of my loans.

    I was hoping to canvas the forum to gauge people's opinion on whether to fix and if so, for how long and what proportion of total borrowings (eg. 50% variable 50% fixed)
  2. Rolf Latham

    Rolf Latham Well-Known Member

    15th Aug, 2005
    Gold Coast and Sydney

    There is usually no right or wrong answer here.

    Often, when someone is on a very fixed income, it can make immdiate sense to fix a rate in an unsure market.

    Current 3 years middle of the pack rates are about line ball with pro pack prime rates, with some predicting further short to medium term rate redns, at least in the 3 to 10 year bond markets.

    If you are going to fix, then you can always leave some variable, so you can pay that off as fast as you want. Note some lenders such as Heritage, dont mind how fast you pay your fixed rate off


  3. Alan

    Alan Well-Known Member

    15th Aug, 2005
    Hi RetireSooner.

    I remember reading an interesting report a few years ago that clearly showed if you stayed on variable rates for an extended period, you just about always wound up paying less money during this period......


    For many, fixing interest rates has nothing to do with saving money, but rather it's about reducing risk. Reducing the risk of not being able to meet payments if interest rates go up by say 2%, 3% or more.

    Is this a valid thing to do? Depending on what structure the person has in place and how big a 'sleep at night factor' (SANF) it is to them, it may be a very sensible thing to do.

    It's all about Cashflow.

    If the investments can be structured in such a way that an interest rate rise of a few percent can relatively easily be accommodated, then staying on variable rates will probably be the 'cheaper' option.

    However, if the structure is so tight that interest rate rises may risk the loss of the asset, then it may be sensible to pay what is usually a premium over the long term for the fixed rate. A bit extra in interest rates is a much better option than the loss of an asset.......especially in a fire sale environment.

  4. luckyone

    luckyone Member

    13th Sep, 2005
    Canberra, ACT
    Also, don't forget that with Westpac you are able to pay up to $15,000 in extra repayments into the loan whilst your loan is fixed, so unless you are going to pay off more than that whilst your loan is fixed, you may not need to leave any part of your loan variable.

    Of course, for other reasons such as being able to access equity in your property it is to my understanding that you should leave a small amount variable.