Originally Posted by
minimoke
Hopefully you have deep pockets! Here’s why: currently ANZ rates are 10.95 floating and 8.95 for a 2 year fixed.
If your mate fixes for 2 years he’ll pay $35,800 on a $200k mortgage.
If he takes your advice he’ll pay $21,900 for the first year interest on a floating rate. And say the rates drop a whole 1% (which I don’t think they will) he’ll pay $15,900 if he fixes for 2 years in a years time. This means you’ll have him paying $37,800 over the next two years.
So on your advice he’ll pay $2,000 more and he’ll be playing the interest market and wondering when to best time his move – only to find he’s miss timed it and lost a couple of K along the way.
Each month he follows your advice he’ll be paying $333 more in interest. Any drop in interest rates has to be large enough to recoup that loss – and this is without factoring the compound effect of reducing his mortgage by this amount each month in the meantime.