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How can I offset/hedge against the high interest I'm paying?

Discussion in 'Business, Investment and Economics' started by ftw129, Dec 15, 2012.

  1. ftw129

    ftw129 Sell crap and manage risk

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    Hello out there!

    I'm currently stuck on a fixed mortgage rate of 7.48% (interest only, investment loan) for another 3.5 years.

    Is there something I can do, (like buy or sell a leveraged instrument that moves in tandem with the rates) to help close the gap between the high rate that I'm paying and the current low market rates? OR have interest rates tanked so much that they aren't likely to fall any further in which case, could I make some of these losses back as the rates hold off and start to creep up again?
     
  2. kincella

    kincella

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    You would need to know what the penalty break fees are to determine the best option.

    There are fixed rates at 5.39 now, and I believe they will stay that way for at least another 2 years
    Have a look at the fixed rates the banks are offering, that should give you a clue to their idea of where they are headed.

    Rams has low rates fixed for 5 years...
    Would you be able to gain a benefit over the next 3.5 years if you paid the break fees, and took advantage of the lower rates?.
    Rams variable rate is just 5.79% only marginally higher than their fixed rates.

    It also depends on how much the loan is, whether it is very large or just average.
    I personally believe interest rates at between 6 -7.5% are heaven, and in line with our new, long term average.
    Have you discussed any options with your bank, to see if they are flexible, and if they are keen to hang onto their customer base ?

    Are you in a good position to renegotiate a new loan with another bank, given the more restrictive loan practices hey employ today. Some people are better off, if they attempt to renegotiate the deal, rather than go out and
    start all over again.

    I was going to suggest and offset account, but my understanding so far, is they only allow these against variable loans, not fixed loans. I could be wrong.
    cheers
     
  3. tech/a

    tech/a No Ordinary Duck

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    Don't know that it would be worth the effort.

    Your talking around $40k over that time on 500k
    Tax deduction say 50%
    So around $100 a week.

    Put the rent up.
     
  4. ftw129

    ftw129 Sell crap and manage risk

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    Hello Kincella thanks for your thoughts/ideas.

    I have been in contact with the financial institution that I have the loan with and it was going to be prohibitively expensive to break any contract I have already with them. I was hoping that they would allow me to drop down to their current 5 year fixed rate and sign on for another 5 years but they were not interested in allowing me to alter my current loan without a hefty payout. It was somewhere in the region of $20,000 from memory.

    There is the option of making $10,000 of extra repayments per year but I prefer to be putting that cash into something a little more useful.


    Haha thanks TA. The lease is coming up for renewal in Feb so that's always a possibility but it wouldn't be by much. I already raised the rent quite substantially this year.

    I was thinking more along the lines of looking at the bigger picture and possibly using a leveraged instrument such as the $AUD or perhaps there is something else that moves around with interest rates?

    The loan is a fixed interest only investment loan for $290,000.
     
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