Setting Up Your Home Loan To Be Part Fixed and Part Variable- Points For Best Financial Outcomes

Finance Graphic

I realize this is a regularly discussed issue here in Australia, and I am relatively certain, in many other countries. In fact, in Australia, home ownership is one of the nation’s great dreams and is frequently discussed over the dinner table. While some European banks may be quite rigid still in the way they do things, the flexibility of loan structures in Australia is quite considerable and the competition between banking groups is fierce. Hence, there are some benefits fr the average consumer and I hope to assist with my take on these issues on the use of fixed and variable rates.


Benefits of Fixed Rates

Some people like the absolute certainty of fixed rates which is fine, but when the market is potentially still falling, in terms of the rates of loans potentially going down in percentage rates, it is wise not to lock all your eggs int one basket. Then again, if you are the kind of person who just wants absolute certainty, then fully locking might indeed be the way for you. However, it is good to have some flexibility with variable rates in a falling market because then, even though you can have a full guarantee of not paying more on part of the fixed part, you can benefit from reduced rates on the variable bit.

Naturally, in a rising market place of increasing interest rates, the fixed way is the way to go, but if you leave some section of your loan variably set, you can make additional payments over a threshold amount if you wish and not suffer a penalty. Most extra payments on a fixed mortgage can be no more than $10,000 per year, typically, but this will vary from bank to bank. In so,me European markets, you may only be able to make additional payments once every three months, after a prior arrangement with the bank, so it is wise to check these points.

Variable Rates


Without doubt, in a market where the rates are falling, the variable method is the way to go. Of course, there can be risks if the rates go up markedly, and as I think I may have made clearer earlier on in this article, my general view is that it can be beneficial to go with a part variable and a part fixed set up so as to have the best of both worlds.


Regardless of your decision, always make sure that you can affords to repay your obligations even if the rates were to go up as much as 3% more as this way, you will have built in enough buffer to cover yourself which is always a great form of personal insurance for financial health and comfort.

The Current Property Market and The Need To Save As Much As Possible

While the article below is intended as a general point, regardless of your exact loaction, I can confirm that in Sydney, Australia, the prices of property have been rising very highly, and in my view, are reaching a point where they are likely to leave quite a lot of pain witgh the prople who have leveraged to the maximum, and found that there is very little left to work with as and when the cost of loans goes up.


While rates for loans have been hostirically low, there is a clear indication from history that rates will at some time rise and I am not sure if all the households out there are ready for it.

Some people are even looking at options liek buying homes further out of town and commuting into the city centres.

This is something that I did some time ago, and the article on the economies of commuting is here for your reference from the Sydney Morning Herald.

While there are certainly some benefits in having a slightly cheaper house when you are living away from work, you do need to factor in the cost of transportm, time and the like.


I think however, that a few years ago, some lending practices, in my view, were a little loose and we are starting to see a return to the higher risk loans with little or no deposit, and people borrowing the maximum they can afford to repay now. Of course, when rates do go up, this will be very problematic, in that some people’s budgets may not make it to stretch further.


Of course, on a positive note, there are more people who have been utilizing the lower rates to get ahead on their mortgages and this is a very positive step.


I know that even of you have a higher rate mortgage, because you may have used a special loan to consolidate other debt into one loan, and have a slightly higher interest rate, it is really important to get in there and pay as much as you can in extra repayments.


These will help to provide a buffer when the times are leaner and also give you an added peace of mind which is priceless in my view.


Extra Repayments and Extra Deposit


It could be argued this is very basic information, but generally, the more you repay on your variable rate loan, the better off you will bem both from the point of view of paying down your debt sooner as well as managing to also build in a security buffer of extra repayments.


Even extra payments as little as ten doallars a week can make a difference over the life of a loan. If you make no further repayments on a loan set over thirty years, you will typically find the first seven years are just paying off the interest which is quite scary.


I wncourage you to make sure that you are always paying as much as possible off your loan for maximum benefit and ownership of your home.







Distance away from home

Property as Part of Wealth Growth

For most of us, a comfortable life is pretty much an issue of some importance, ranging to down right critical for some others. I will be discussing how property as part of wealth growth is critical to this overall process.


Regardless of where you are on this line, the fact is that we all need to make sure that we are able to support ourselves through our life times. I know that the traditional model is to go out and work for around forty years, then retire, and hope your savings and the government pension will look after you.


Needless to say, this is proving to be a very unreliable way to go about things!


Property as Part of Wealth Growth


It is important to note that over the years, property as part of wealth growth has proven itself to be one of the single most reliable investments. People all need to live somewhere and in some cases, receiving the rent is a great way t benefit from renters.


I know that there is the opposite side of the equation where some people want to rent, because that way, they may be able to live in more desirable and expensive area, compared to the affordability issues of actually buying in a given area.


Either way is OK, and up to you and your budget.


However, if you are in a position to, it is also a great idea to buy property, either rent it out or wait for capital appreciation, or both, and build your wealth over time.


Naturally, it is essential to get professional advice in this area, but overall, understanding these principles will assist you to achieve a greater wealth over time, when you act on the knowledge you have gained.




Planning- Essential for Overcoming Problems and Stress

Planning is an imperative aspect of life and I have found that it has helped me enormously in my experience.


I hope to enhance this point in the below article and encourage you to face any challenge, with a full plan ahead!

Planning- Essential for Overcoming Problems and Stress

I am certain that in my life, I have had plenty of challenges, as just about everyone else has from time to time as well. However, it is not often the challenge that is the issue, but rather the way that we choose to deal with it.

In my younger years, I tended to get quite angry at the injustices of the world that I was seeing, as I had not yet developed the maturity to deal with the issues in a methodical and suitable way, given the need for decorum, respect and an understanding of the other person’s view. All very important issues indeed. Also, I am sure you recognise that there is a a right way and a not-so-right way to approach different issues.

So, bringing the above into a process where you can easily see where I am going and hopefully, make a useful point here…

Owning Your Own Home


Essentially, if we want to ultimately own our own homes, we need to make a point of actually working on a process to get there, or for that matter, to any other ultimate destination that we choose. This is very important indeed.


The focus of this article is on home ownership, but the principle may be applied in any situation to your requirements. I have found that instead of worrying and thinking that something is beyond my grasp, the fact is that with time, anything is possible.


If you have had a bad experience with mismanagement of credit in the past, it may be time to seriously look at what happened for that to occur.Did you over commit? Did you lose an income stream due to unemployment etc?

By acknowledging the circumstances that caused the problem, you are able to look at what needs to change. So, if you are experiencing poor credit, it is something that will be repaired given time, if you do not apply for any more loans and diligently pay off your current debts. It may seem very simple, but I am trying to keep my point simple. There is no need to follow the masses in over complicating things for no good reason.



In this case, you can then look at what needs to be done to bolster your savings and then plan for it.


It will certainly take a typical adjustment but this is also part of the development and improvement process, as can be learned from the Laws Program.


In other areas of your life, planning is essential. It does not matter if it is your next holiday, or your retirement. In fact, statistically, it is shown that more people plan better for their next holiday than their retirement. That is sad in a way, and you can have your cake and eat it too. I know there have been some wild rides in the finance markets over the last few years since 2008, but the fact is that things, when looked at in a longer term process, are always able to work themselves out.


Panic is a killer of dreams and also makes the people without a plan make potentially poor decisions. However, I hope I have given you some thought for consideration- planning will help to avoid crisis in many cases, or better train you for dealing with any issues that may arise.


To your health and happiness.







I Have a Bad Credit Record- Can I Ever Own a Property?

I seriously get excited when people mention the above question to me and ask about the possibility of owning a home in Australia even if they have a checkered credit history.

I made it my business to learn much more about this important issue after I went through my personal financial crisis some few years ago, and decided a couple of things…


I would never allow this to happen to me again

I would learn all I could about this to help others


I know how easy it is to be bullied by the big boys when you are behind on payments and there are ways to overcome these problems and start again. However, the banks may not want to loan you anything for quite a number of years, given your past history. In Australia, this can take as long as five years to clear off your record, and naturally, you may need other ways to legitimately move into your own home.


The good news is that it can all be done, even with bad credit.


It is possible to ultimately own a property.