YES! I want to learn more about property investments.

Should you fix now or float?

5 September 2019

 

Should you fix now or float?


 

 

 

 

There is so much talk about interest rates at the moment.  Many property investors and home owners are floating and hoping for interest rates to go lower. 
 
But how long should you float for?
 
 
OFTEN YOU WILL SPEND MORE ON EXTRA INTEREST WHILE FLOATING, THAN YOU WILL ON SAVINGS!
 
 
 
Step 1 – How low do you think interest rates will go?  And based on time period in Step 3 below.

  • 3.4%
  • 3.3%
  • 3.2%
  • 3%
  • Something else.

 
 
Step 2 – What is your Floating rate compared to the fixed of say 3.55%?
 
I’m going to work on 5.15% from interest.co.nz.  So 1.6% higher
 
 
 
Step 3 – Work out how long floating for?  What is your guess of time before you will hit the interest rate you want?
 
 
 
Example
 
Loan $1 million
Floating 5.15%
Current 1 year being offered 3.55%
 
Expected new 1 year rate 3.3% in 3 months time (note:  this is just a guess)
 
 
 
OUTCOME
 

  • Spent $4,000 in extra interest over the 3 months while floating.
  • Saved $1,875 in interest over the 9 months fixed at 3.3% vs 3.55% currently offered.
  • OVERALL LOST $2,125!!

 
You can also watch a short video by Ross explaining this, if you prefer.  Click here to view the video. 

If you are a Coombe Smith client, we can email you a spreadsheet to help!  
 
 
Hopefully this has given you something to think about!


Kind regards
Ross Barnett

 
 
 
 

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