To fix or not to fix? That is the question

By Catherine Lezer
Whether to fix your property loan is a big topic. Here are points to consider.
  • Don’t fix if you know you want sell, refinance your loan or deal with the property/loan in anyway.  Renovating, subdividing, even buying more property using the equity in this one will probably mean you want to change the loan in some way.  Fixed loans all carry potential large exit fees, called “break costs” if you try to leave the loan while it’s fixed.  This can never be know upfront as it’s a complicated calculation, based on difference in rate and time,  that is worked out on the day. 
  • Even if you are convinced you are keeping the property and loan as is, fixing for too long is risky anyway, due to unforseen events. Marriages, divorce, deaths, overseas job offers, winning lotto can all interfere with an otherwise sensible plan to keep the loan in place. That said if you win lotto you won’t mind paying the “break cost” I suspect.
  • Some people find fixing the loan and knowing the repayment comforting.  Others find it restricting and get frustrated they can’t be flexible with the loan, or repayment.  Know your “sleep at night” profile and discuss with your partner.
  • You can choose part fixed, part variable provided you stay at the same bank.  This can be in any proportion that makes sense to you.   Fixing half is like having a bet each way, some variable to benefit from rates drops and some fixed to benefit if rates increase.
  • Most banks have restrictions on making extra repayments, usually only $10,000 per year above your standard repayments without potentially triggering off a "break cost".  They are not designed to be a flexible loan.    Some banks allow more, some less.  If this is important to you, speak to your mortgage broker about your needs.
  • Almost all lenders will not allow you to have an offset against a fixed loan. There are some exceptions so ask your mortgage broker if this is important to you.
  • If you have a plan of owning many investment properties, be careful of locking in at one bank.  Sometimes this works for you, sometimes against.  If your bank says no and you are on a fixed rate and can’t leave, then your plan may be disrupted.
  • If in doubt, go variable. You can always fix later (all or part of the loan) for a small fee.  What you can’t do is take a fixed loan now and decide it’s a mistake: you are locked in for the fixed period.
  • When the RBA sets official interest rates each month, they are NOT talking about the fixed rates.  Fixed and variable rates move for different reasons and at different times. The RBA website is about the only reliable source of interest rate movement information around and they give great hints about rates in their public speeches and monthly meeting minutes.
My final thought: in the absence of crystal ball, all you can do is look at the rates on the day and the above points and make a decision. And keep some perspective, yes the loan is important, but its not anywhere near as important as choosing the right property, negotiating the price, getting a good property manager, selecting tenants…. you get my point.

Property is Catherine Lezer’s passion. She owns nine properties of her own and has a fundamental understanding of how the property market works. 

“I’ve bought some great properties and some ‘bad’ properties, and even the bad ones have made me money,” says Catherine. “Property is the most reliable way to make money that I know!”
“I’ve purchased, sold, tendered, offered, negotiated, won and lost at auction, developed and renovated so I understand what happens out there in the market,” she adds. “Being able to help other people finance property is an added bonus for me.”
Originally from Perth and now based in Sydney, Catherine joined Smartline in 1999 with over 25 years of banking experience and qualifications include a Bachelor of Business and an MBA. Catherine has helped hundreds of clients finance houses, semis, terraces and apartments, with the majority of her business coming from word of mouth referrals.