Based in Western Australia, Tim Massey is a 28 year-old active property investor and a government employee. In a q&a with CANSTAR Tim explains how he chose his combination of fixed and variable mortgages.
Q: It can be tricky to decide whether to fix your mortgage or stay on variable rates. What factors did you consider when making the decisions on structuring your investment loans?
Ok, so firstly 2 years ago now, I decided to fix my home mortgage. At the time, variable rates were around 7.1%. I fixed for 3 years at 6.39% with ING Direct, which will expire Sept 2014. I decided to fix at the time because there was a lot of uncertainty in the market. I had watched rates rise from around 5.5% to 7.8% since the recovery of the GFC. At 6.39% my repayments were considerably cheaper than sticking with the variable at the time and my payments were manageable. Ok so yes, interest rates are now lower, but it has not bothered me. For the past 2 years, I have lived stress free knowing what my payments will be and knowing I can afford to pay them.
Knowing I had my mortgage payments under control, it gave me the confidence to buy my first investment property.
About 1 year ago, I purchased my first investment. Over that year I had seen Interest rates drop to around 5-6% with a lot of news of further rate cuts in the future.
Having had a positive experience fixing before. I had no problems deciding to fix again.
This time I fixed 80% of my Loan for 2 years at 4.99%, and I left the remaining part of my loan variable. I decided to do this because in the long term a 2-year fixed rate at 4.99% is pretty cheap! I also left the remaining part variable because of the likelihood of further interest rate cuts.
As everything was going smoothly and I had my finances and payments under control, I decided to buy a second investment property, which I purchased three months ago.
Having two mortgages fixed already, I was aware of the significant break costs should I wish to change the loans or sell the properties, so for property number three I decided to keep the whole loan variable. The reason being: if I get into financial difficulty, I would be able to sell this property easily without having to pay the break costs. The variable gave me a “Plan B”, should anything go wrong. My variable rate is still pretty cheap, currently at 5.29%.
Q: Did you get advice from anyone or did you make the decision yourself?
My first mortgage with ING, I chose myself. I used Canstar for my research, which rated the ING Loan as a five-star product.
For my second two loans I used a mortgage broker to find the loans. But it was my decision to go with the Fixed or Variable.
Q: In retrospect, have you been happy with the decisions?
Yes overall, I have been very happy with my loans – even my ING loan, which is still fixed at 6.39% for another year. If it wasn’t for the confidence of knowing my repayments, I may never have bought 2 investment properties