812 rising interest rates + is now the time to fix?

0:00So Rachel, your expertise is really appreciated today talking about fixed rates for owner ox and investors. Should we or shouldn't we? But before we go into that, there's a lot of doom and gloom right right now. Like we wake up and we've got the war in Iran, we've got petrol at $3.9, I saw this morning, we've got a rate rise or two rate rise already this year and it's not even April. Potentially another one or two rises, we've got government reforms on the agenda, capital gains, tax changes, all these sort of things. So as a consumer, as a general person in society in Australia right now and then coupled that with being an investor or an owner occupier with a mortgage, it's quite normal to be having some uncertainty. Yeah, and I think there's a lot of uncertainty at the moment. I think people are feeling a little bit, I guess a little bit shell-shocked about the

1:02quick change. We've had two rate rises and you're at $3 a liter at the fast part. Like you just wake up and think, well, what just happened? Yeah. Like the opposition just kicked 10 goals on us, like in a sporting sense, right? You're like six months ago, rates were half a percent less at least, maybe more. And everyone was talking about more rises, sorry, drops to come. The expectation was that 2026 was when the drops were going to be. Yes. And I don't feel like people are thinking that way now. No, that's right. And they're going, well, I've got my own view and I know you have as well and we'll talk about that a little bit later. But I think we want to start this conversation today around, well, let's get our own financial house in order. So what are you seeing on the ground right now? Yeah. So I've had a lot of conversations in the last week. And I would say, you know, the vast majority of people are asking what should I do to be prepared? And so I think people are feeling like we are going to have a tough six or 12 months.

2:07And if that's the case, what are we doing? And whether you're, you know, at first time, by a lot of people who I speak to, you know, this is their first time, maybe in a rising rate environment because they've put their first time a few years ago, but a lot of people are investors and it impacts everybody differently. But I think we need to control what we can control. We need to really look at what is in our, you know, sphere of influence. And when we are in a rising rate environment and other costs of living are impacting us, we need to look at our financial house more importantly and strongly than ever. So things like, do I have any consumer debt? If I do, it's time to get rid of it. Do I have an adequate buffer account? Do I have an adequate emergency fund? And a lot of people listening probably do have their emergency fund. But if we think about a lot of people I've spoken to that may not be even podcasts, there might be people that, you know, haven't followed the whole, the whole journey. A lot of people are saying, oh, we had a bit of savings, you know, during that two percent

3:10rate period. But that's gone now. I was expecting. I've held on. I've spent my buffer account. I've spent my, you know, emergency fund. And I think it's really time for everyone to sit and look at what you can control. Do I have an emergency fund? Do I have my buffer account? Am I getting rid of consumer debt? If not, it's time to get that in place because you and I both know in rising rate environments, it can get harder to get your financial house in order. And if you're not filling in control of your finances now, it may be harder in six months time to get them under control. It's a good call. And we'll talk about why you think it's harder in six months time in a sec. But I think it's about controlling the controls, isn't that because a lot of these things that we mentioned, petrol, interest rates, government, like they are things that are out of our control. So my mindset is huge right now. Like I was, I did some videoing on this yesterday internally. And like, I think back to GFC, I think back to COVID.

4:16And I'm old enough to have been through those times and have purchased property through those times and didn't think twice, right? Yes. Now, that was just the way I was going. Like it was all full bore and think about it later. Now, people are a bit more calculated and smarter than me this time around. But I think the mindset of, well, what can I control first of all? And that noise external, I just need to factor in IE, if interest rates are going to rise a once or twice this year, am I still OK holding this property? If the government reforms come into play or they don't, I've got no power over that. But you mentioned about emergency buffers. So in your world, like maybe personally or what you see with clients is three months worth of cost to exist, something you work to. Yeah, so that's the, I like three months and everybody has a different variance. That doesn't have to be the right or wrong. But for me personally, it's three months.

5:16You should have, you should have enough money in emergency account to cover yourself for three months if something happens. Now, that's an emergency fund. The other one is the buffer account. Things like there's enough money in this account if a hot water system goes. But a client that I spoke to earlier this week was at a different stage where they have been holding on waiting for rate cuts. They've had their second child just going to daycare. One of the partners had a step back to part-time work. They've got no buffer account, no emergency fund. They've got two credit cards and they've taken out a personal loan to cover themselves. And so this is probably something that could have been cleaned up a little while ago. And you just want to clean that up before and if rates go up again and this was, you know, we're talking about rate environment. Sometimes as rates go up, it can get harder to clean those things up. So you just want to make sure when things get, I always think when people things get tough, it's when you don't have adequate cash buffers to get you through if something does go wrong.

6:20And that's things like, you know, it might just be as simple as, oh, well, the car broke down and I didn't have an emergency fund. So then I got a credit card. It's a snowball, isn't it? It is a snowball and that's when people get into trouble. And I remember looking at this, you know, and I'm probably showing my age, 20 years ago, there was a similar sort of cycle and, you know, people got credit cards and everyone was trying to roll credit cards into their home loan. And, you know, you, you can do it at a certain point, but you can't do it at a certain point as well. So it's just, it's just really important to get your financial house in order and have those funds available so you don't need to get consumer debt. Yeah. And I suppose talking about that situation makes me think goals and what's happening in the next five years that may impact my personal life that maybe I've got some control over. IE, I'm going to have a child or a plan to have a child or a plan to have part-time work or I want to go overseas or I want to do this, I want to do that. I need to upgrade my car. All those things impact the decisions that we make now.

7:21And I think we're probably talking to someone that was born 2000 and after. Yeah, because they're 25, 26 and less. And as you mentioned before, COVID interest rates, 2%, like they, they really haven't seen interest rates higher than that. Oh, sorry, higher than what they are now. So it's a big shock to the system. Whereas us oldies, right? We've been through a few things. I haven't been in oldies. Well, we're not oldies, but you get my, my drift. It's, it's like we've seen six and seven percent interest rates. We have. And we've come through them. And I suppose that's the key message today is we're going to talk rates and whatever else. But the key message here, first of all, is we've been through these times before. It's going to be okay. But here's what you can do now to ensure that it's going to make it easier for you. And your sleep at night is going to be a lot more, I suppose, enjoyable. That's right. And I guess the last time we did have a rising rate environment,

8:22everyone was coming off those two percent rates. And I think a lot of people did have the ability when rates were 2% to put extra funds away. So if you haven't had the opportunity to put extra funds away now, it's time to look at it. It's time to make sure you've got those buffers. Do a little print out three months bank statements. Look at what your outgoing is. Old school. And check your old school. Check it out three months. It's really easy to do it on the apps now. And just go, what have I actually got coming out of my account? What's my in? What's my out? And actually set yourself a budget. Because your budget's different now than it was two weeks ago. Even though I just filled up on the way here and it cost me double, really. What I'm used to. So when you're doing your budget, you've got a factor in all those bigger costs, the rate rises that we've had. And what can we let go of? And do we have buffers in place? Yeah, you're quite a led foot too. So you've got a big more juice. But look, control are controllables. Write down some things that you can do right now. That's in your control, not out of your control.

9:22And that's a great starting point. So yeah, let's roll with that. I'm John Pigeon, your Rachel Krune, and you'll listen to this as probably. I'm John Pigeon, Founder and Director of Invisage Property by Vase and Service. And I'm Rachel Krune, Founder and Director of Sphere Homelands. We also support this podcast. This is a show for Australians that want to make smart and inform property decisions. And to be kept up to date with the ever-changing lending landscape. We would love for you to join the discussion in the Australian property tat Facebook group. Thank you so much for joining the show. We are glad you're here. So Rachel, fixed versus variable. And for a lot of first-time punters, fixed may be a little bit fine. We may have fixed through COVID or we may not have. We may not have had a property through that period. But when you fix a loan, essentially, what is it in Laman's terms?

10:24Yeah, so fixing a loan means you're going into a contract with the bank for a period of time, for a certain rate. So if you fix a loan for five years, you are going into a five-year contract with the bank at a certain rate. Now, I guess the important thing to think about when you're fixing a loan is that it is a contract. So you're actually, we talk about there's no exit fees on home loans anymore, but there is for fixed rates. So you're going into a contract which might be right for you, but you need to understand what you're actually doing before you fix a loan, which is going into a contract for a period of time with the bank. Now, when we say exit fees, it's really hard. People always say, hey, I'm going to think about fixing my loan. But what I'd like to know is if I do fix it, what's the break fee? If I need to get out of it. And the answer to that is, and this is what is in a fixed-race contract, is it's an unassertainable amount, because the bank will charge you their economic loss

11:27on that product if you break the loan. So let's just say, you know, I say I'm going to fix for five years now, but in two years time, I need to sell my house for some unforeseen reason. I need to sell my house in two years time. Well, I've got a contract that goes for three more years with the bank. And if rates have gone down, they're not going to lose anything. So they're saying, here's your standard $500 exit fee later. But if rates have gone, if rates have gone the other way, and they would actually lose money when you break, they will work out how much they'd lose. Let's say you fixed in at 5%, but now rates were 3%. Well, they'll go, well, we're going to lose 2% for the next three years. That could be $20,000. That's your break fee. So when you fix, it might be right for you, but you do need to think about the term that you're fixing for, and also what's going on in your life. What might change in that time that I'm going to fix? So I was in a reputable mortgage-breaking office last week,

12:30ready mid-to-end lines. You probably know where it was. And we were talking about a three-year fixed rate right now. So today's rates, let's just, I suppose, blanket it and say, right, let's call it 6%. Three-year fixed rates at the minute seem to be somewhere around that figure. That's right. So talk to us about maybe the psychology of that. Because when I look at that, I think, well, hang on a minute, if it's 6% in three years, and I'm paying 6% now, the banks don't lose money. They're not in the business of losing money. So in my logical black and white thinking, I reckon that the banks think that in three years, the interest rate is going to be less than 6%. Is that fair thinking? That is fair thinking. Now, a lot of people have only ever seen fixed rates in COVID. So it's a really important thing. The banks got it wrong in COVID. They thought the economy was going to be impacted a lot worse than it was, and they set things like four and five year fixed rate at 2%,

13:32or even one nine nine, I think. The cash rate was at zero. It was at zero, but the banks, so let's go back a step. The best economists in our country work for the banks, and they help with forecasting, the analysts and the banks, they go, here's what we think is going to happen. So when the bank sets a three year fixed rate, and if it's 6% at the moment, the bank is not expecting to lose money on that. Now, because, and it's like when you go to the casino, somebody has a win and you go, everyone's going to win, I'm not saying not to fix, but in those COVID times, because the banks got it wrong, a lot of people made a lot of money by fixing. I've got clients now still coming off their five year 2% fixed rate. So they're coming off now, and they're going, I'm just so glad I fixed, so I'm going to fix for another five, and we're like, oh, let's just stop and really talk that through. Yeah, so when you say may a lot of money, like they saved a lot of money, so if you're coming off a five year fixed rate right now at 2%, that you locked in in 2021, you've had a great experience with fixed rates.

14:32But there's a lot of people that fixed at 5,99 in 2014, who wouldn't have the same experience. Yeah, absolutely. And I revert back to early days in my investing journey, where my uncle was a massive influence in my life, and he was a bank manager with Westpac, right? And he always said to me, never fix your loans. Yeah. Talk to me about that statement. Now, I think fixing's right for the right people, at the right time. So I'm not antifixing. We've actually fixed an incredible amount of clients in the last few weeks. So there's the two year fixed rate at the moment is in the high fives, and a lot of people are fixing right now for the certainty. I, there's a lot of uncertainty in the world. We've just talked about it. So why somebody would fix would generally be for certainty? They want to know what they're paying for the next two years. They don't want these things to go up and down. So if you're thinking, should I fix my loan? If you're fixing for the reasons of I want the certainty of knowing

15:35what I'm going to be paying every week, amazing. The reason somebody may not fix is because they don't want to be, they don't want to be contracted, or they don't, the fear of the unknown can be hard as well. So I'm an investor. I never fix my loans. I never fix. Do I think I might, if I look at the three year rate is on the investment loans right now? Do I think I might save money? I actually do. I actually think if I fixed my investment portfolio right now for three years, I would save money. That's my personal opinion. But I'm still not going to do it. The reason is I personally need flexibility. I want to buy another property in 12 months time. And if I have all my portfolio fix, it makes me rigid. I can't just move banks to be able to do that. And I also can't extend my loan terms. So a lot of the time if you're an investor and you're buying another property at that time, you need to extend your loan terms out to be able to serve as the next property. I can't do that if I've got my portfolio fixed. So I'm stuck with a lender and I'm stuck in a loan term.

16:37And you can't change from say, interest only to P and I. That is right. That is right. So I like to keep my own personal portfolio fluid because I'm an investor. And I think it's different for investors. And it's different for owner occupiers of whether you would fix or not. So my advice to anybody planning on fixing is this. Firstly, do not fix a loan without talking to your mortgage broker. So that's the first thing. So call your broker before you fix your loan and say, I'm considering fixing. Let's have a chat because your broker is going to know about you and your plans. And they'll have a conversation with you. And the bank may not do that. The bank will put it on the app to say, do you want to fix your loan? Great, let's lock that whole thing in five years time. And then you're in a contract that you can't get out of. So talk to your broker before you fix and go, let's, and you broke all our some questions. Like things like, do you expect what do you expect to happen in this term? So you might think I'm going to fix for five years, but they might have a conversation with you to say,

17:38what are your plans in the next five years? Oh, I might be upsizing my home. Well, let's consider a two year fix rather than a five year. So it's just a conversation of what, what am I doing? So talk to your broker first. Also, we want to make sure we're fixing it at the best possible rate. So when a bank advertises their fixed rates, they have a cardidrate, which is what you see on their website. And then there's their rate that they'll give you to not lose your business. And that's important. So we had a lot of conversations with people last week, and there was a major bank that was their cardidrate was one thing, but the rate that a lot of people were getting was less. But it had to make a phone call to get that. And how much less might that have been? 0.2? 0.2%. Yeah, that's a big difference if you're thinking about fixing. Yeah. So you need to be able to know what, so your broker will guide you through that. The other thing is if you're an investor, it's different. So you know, you're looking at their interest only rate, which might be different to their principal and only principal and interest rate.

18:39So it's just about talking about those things. And you know, if you're an investor, you might be inclined to fix all of your loan if you are planning to fix. So you just need to know about that term and what's going to happen to you in that term. Are you buying other properties? Maybe you want to sell a property. If you're thinking of selling, this is not the time to fix. Yeah. And if you don't want to be caught in a position where you're going to get fees on top of selling a property. So it comes back to those three to five year goals that we spoke about at the start. So I think about what's going to happen and play out in your life. We can't guarantee it, but we can jot down the probables and then you can make an informed decision. You talked about, I suppose, the fact that you've never fixed or investors might not want to fix their whole portfolio. How much does risk tolerance come in to play there? Because like, if you're a really conservative person and you want to maybe guarantee some things in your life, fixing is perfect for you. And as long as you understand the break fees

19:41and everything that's associated. He's right. Is that fair? That is right. If we've got a low risk profile, this might be for you. And I spoke to an investor recently. They've got one investment property and they've got their own occupied. And they called off the back of an email to say, I am going to fix. I just want to have a chat first and we spoke through it. We ended up locking up their investment loan. And the rate for that was actually less than what they were paying now for interest only to fix for the next two years. Right. So for them, if rates go down in 27, they might not get the uptick this year, but they'll lose the down if rates go down. But they've got certainty in their life. They've got certainty. And that's what they want. And they're not planning on buying another property. Then we looked at their own home and they said, we want to fix that as well. And they said, we're just going to fix the whole thing. And I said, okay, let's have a chat about that. Because if you fix your whole loan, what about, what's in your offset account right now? That won't be offsetting your home loan if you fix it. I so many questions I want to ask you in that.

20:43Like, I'm going back a step and come back to the offset. But you mentioned about, well, we might not be able to do these things in six months. I get rid of my credit card or refinance. Why not? Why is six months time different to now? Well, if we have two rate increases, and I'm not saying that's going to happen, but let's say we do, we have two rate increases between now and then. You may not serve us the debt that you have. And that's where people get stuck. So the income versus expenses in your life, banks say you can now borrow less, which means you can't go and refinance what you could have done six months ago. That's right. And as another case, if you do get a couple of credit cards to get you through a tough time and let's say you miss a few payments, then it becomes really difficult because there's open banking now. So the bank can see everything that you do whether you close it or you keep it open, they can see everything you've done for the last few years. So it's just, it's just really important that if you need to clean up things, you do it before you miss a payment, before you get tight.

21:43But jumping back to that fixed scenario, we're talking about on their own home, I said, how much have you got an offset? And they had $30,000 in an offset account. And I said, well, we definitely need to leave $30,000 variable because you're not paying interest on that $30,000. And then I said, well, think about the extra payments you can make for the next three. Is they fixed their investment for two because they thought if we're going to sell that at any time it won't be in the next two years. But they fixed their home loan for three. Now, on their home loan, I said, well, you're making extra payments every week. So how much do you think you can make in the next three years? Because you need to forecast that before you fix. So they ended up saying, well, we're not going to pay any more than $100,000 in the next three years. But I've got $30,000 in offset at the moment. So we left $150 variable and we locked the remainder. OK, so that speaks to a split scenario. So we've fixed a certain portion, a certain percentage. And you've kept a certain percentage variable. Now, can you choose what that split is?

22:45You can do $30, $80, $20, $90, $10, whatever. Yeah, and I've had clients in the last week say, OK, I'm going to look $200,000 for three years and then $100,000 for one year and leave $200,000 variable and you can do anything you want to do depending on your bank. But most professional packages will allow that kind of flexibility. So important to have some expert in your corner in that space like you mortgage broker isn't it? Because otherwise, you just go spinning around in circles, you throw it into chat GPT or you ask your neighbor, what are they doing when their situations completely different to yours? Like, you just need some confidence to say, well, here are your options. Looking at these options, here's the ticks, here's the crosses. Let's maybe go with this, which may be a hybrid of both. Yeah, so when it comes to fixing, I'm certainly not anti-fixing. But I am anti-fixing without knowing everything that you're committing to before you do it. So have a conversation with your broker, talk through your plans in the period that you're going to be looking for.

23:45And really, you've got to think, if you're going to look for five years, you really need to think about a five-year plan before you commit to anything. Because those break fees can be quite hefty. Especially if the interest rates have gone the other way. So the biggest break fee that I've seen in my career was $43,000. Oh, gosh. And those clients were getting divorced at the time and it was not a choice. So they had no choice but to sell this house. And if you're selling a house and you're going to walk away with less than what you hope for, and then you get lumped with a $43,000 break fee as well, that's heartbreaking. So I have a bias sometimes when I talk about fixing because I know those, the other side of things. So I'm certainly not saying not to fix. I'm just saying to really think about your plans and the timeframe before you do it. Yeah, absolutely. And choose your partner wisely. Yeah. So the last thing before we sort of move on is you mentioned about the offset account. If you've got 100,000 in an offset account and you fix alone, 100% fix it,

24:48why is that offset account important or not important when you fix it? Is that 100% that 100,000 not offsetting now? No, well, there might be one or two banks in the 60 that do allow offset for fixed. But they're very rare. Both of them don't allow any. And some will have a portion of the offset that can be offset. If you have 100,000, maybe 30,000, that will be offsetting. But let's just talk about the majority. The majority of banks, if you've got a $500,000 loan and you have 100,000 in offset, you're only paying interest on $400,000. But if you were to fix that entire loan, you've wasted that 100,000 offset because you can't have offset on fixed. Pretty important. There's also an amount that you can only pay extra, which changes per bank. So one bank might have, you can pay $5,000 a year extra. Or some banks might have, you can pay $25,000 in the fixed rate term. But whatever that is, you need to understand it before you fix. So please, and so many people have done this lately, please do not fix your loan on your internet banking.

25:49Don't go on there and just say, do you know, I'm with a bank at the moment that it's always flushing in my face saying, do you want to fix this loan? And it's so easy to go, yes, I do. Well, I would fix that whole loan and I'd be in this contract, do not realize that I'd be losing all of that offset benefit or that I'd have potential break fees. Yeah, it's as easy as ordering a pizza online, isn't it, just to click the button. And yeah, okay. So understand your cash flow, understand your cash flow in your life, to know what you're potentially saving the next two, three years if you are going to fix, because that's mean, especially with a non-occupier loan, that that's the amount that will be going in the offset or further payments or extra repayments. So you don't want to back yourself into a corner there. That's right. This is property is brought to you by Sphere Home Loans. Sphere Home Loans is a mortgage broker that helps our listeners all around Australia. So if you want to get into your first home sooner, looking at upgrading an additional property or want your current mortgage reviewed, just search Sphere Home Loans or click the link in the show notes

26:51and their dedicated brokers will be able to help you wherever you are. If you are, however, after personal financial advice, don't get it from a podcast. If you would like help, based on your own personal situation, head over to moneypodcast.com.au. Click get help, and we'd be happy to introduce you to one of our trusted professionals. That's moneypodcast.com.au and click get help. Okay, so just give RAP what we've spoken about there. The, you talked about that example rate of, I think you said 500k loan, 100 in the offset. That means we're paying interest on 400 interest as calculated daily, et cetera, et cetera. It's a variable loan. We then go and fix that. That 100k is no longer offsetting because fixed loans don't allow offsetting or not much. Yeah, except for a few outliers. There's a few outliers, but let's go the majority. We spoke about split loans. So let's combine the two together and say, like, okay, we've got a hundred grand in the offset.

27:51We do want to fix because we need some certain in our life that maybe got a lower risk profile, etc. What can we do there? Yeah, so, and we were talking about this just before we had a break, but Ryan the producer is in the room and he said, I didn't quite understand the offset and the split loan part. So I figure if Ryan doesn't understand that sitting in this room, there's a lot of people who probably didn't cover that for in what we just said. So I just want to really hone in on what a split loan is. So when you call your bank and fix your loan, let's say you've got that $500,000 loan, you don't have to fix the whole thing. You can opt to split that loan. So if I were to call up and say, I want to fix my loan, but I only want to fix $300,000 of my $500,000 loan, that creates a split. So now I have two loans. I have a $300,000 fixed rate loan and I have a $200,000 variable loan. So only the three year fixed, that this $300,000 is fixed and that's in a contract, but this $200,000 I've left variable. So that variable loan is still not in any sort of contract.

28:54So I can pay as much as I want in extra repayments and I can also offset it. So my $100,000 is offsetting that $200,000 split. I've already got $100,000 so I'm only paying interest on $100. But over the next three years that I have this fixed portion here, I can pay as much as I want on this variable split. So it's hedging your bets and you can have that, you can have as many splits with most banks as you like. So we could have done a, but most people would do a fixed split. One, and a variable split. And you need to think about the variable amount, how much you leave variable, because when you're thinking about fixing your loan, you're forecasting. You're forecasting yourself for that two-year period, all that five-year period, whatever period you're fixing for. What's going to happen realistically? Am I going to, am I going to come in 20 money in that time? Am I going to be able to make extra repayments? And do I have enough variable to accommodate my plans? Now, a common thing I've seen is where people have fixed especially for three years plus that they've come to us

29:55in that period and said, oh no, I didn't leave enough variable. And now I have this money and it's not offsetting anything. And they're putting pieces of money into savings account where they're getting less than they would if it was offsetting. So it's really important to plan before you go into the contract of fixing and splitting isn't a loan application. You don't have to refinance for that. When you fix, you don't fix all of it, you fix a split, which gets created. Yeah, so that 200 that's variable is at the mercy of the RBA's decision. Interest rates might go up down sideways. That is right. But the 300 is locked for that period, yeah. Yeah, I'm just going to jump on and talk about, do you know what we talked about, debt recycling the other day? And we talked about, oh well, some banks will let you split loans and some won't. Well, sometimes people use fixing as a strategic move to create a split. So you might say, okay, I'm going to have that $100,000 variable. But when I pay that off, I'm going to pay that off. I'm going to then pull that $100,000 up and debt recycle it.

30:55That's the way to create the split without refinancing is by fixing. Crafty. It is. All right. So we've spoken about fixed versus variable. And I suppose the pros and cons of such, the risk profiles involved, and what's certain in your life, and all those sort of things, maybe investors. How is the game change when we're an investor versus our occupier? Yeah. So I think a lot of people listening to our podcast are property investors. And if they're not, they probably plan to be fixing is different for an investor to an owner occupier. They are different. They're different things. You have different things going on in your life. Now, I'm sure you've spoken to a lot of people in the last few weeks about fixing. There's been a lot of uncertainty in the market. What do you want your clients to know before they fix a loan? Yeah. And I suppose it's a lot of what we've already covered, right? We need to know what's the next three to five years going to bring for you in your personal life. What are your emergency buffers?

31:57You spoke before about a buffer for repairs and maintenance. So you're playing a bigger game aren't you when you're investing? You may have your own occupy. You may have two or three investment properties or even one investment property. So you've got some moving parts. So you may be deciding, yeah, I want to fix portion of my own or rock. But my investment, what am I doing with that? Am I holding it for the long term? Am I, is it something where I want to add some value to or I need some money out? Do I need the flexibility to move banks at certain stages? But having the buffers, I think first and foremost, across your whole life. So I call owner occupy your personal life and investment your business. So in your business, you want your business buffer, your emergency buffers in your personal life. So everywhere you look, you've got a savings plan, but you've got buffers everywhere in each portions of your life. But the key with, I think, investments is

33:00what are you doing with that particular property? And you're not going to move that for the next five years. Like if I'm fixing it for five years, I know 100% that I'm holding that property for the next five years. That's all great. But I think it just, it means that I'm rigid for that bank for the next five years, whereas another bank may come along and offer me a much better scenario. Yeah, and that scenario doesn't have to be about lending. That scenario could be valuation. Yes. So we've talked about this so much about, we're pivoting and we're going to this other bank because the valuation was so much higher. Well, if you're fixed in with bank A, you can't just fluidly move to bank B because they gave you a high valuation. Yeah. And while we're talking about valuations, if we're moving into a tougher rate environment, if we're moving into a tougher time in the economy, and I'm not trying to scare my younger sister that I've read the news like everybody else, if that's where we're going. That's where you went wrong. You read the news.

34:02But when we're talking about that, the other thing that can be impacted is valuations. So you might be in a position now to make some moves while you're flexible and you're lending. Valuations might be strong. If we have a tough time for 12 months, valuations may not be as strong. So when the valuations, we've seen valuations go up and down and you've just got to ride the wave and it's not a reason to generally buy and sell. But it is a reason to think when valuations are strong, you want to make sure you get your house in order. Yeah, and you get your money out of the well, equity out, etc. And just on that, a portion of the value as job is to assess market volatility, isn't it? When they value a property, they say, well, what's the current state of the market doing? And if they're jumping out of bed saying, oh, prices are going up and there's some the economy's unbelievable and everyone's got a spring in their step, the valuation is generally a little bit higher, isn't it? Whereas if the value is sort of crawling out of bed

35:04and the economy's down the drain and interest rates on the rise and the buy sentiment off, the valuation will be reflected there. That's right. And risk ratings come into play too. So we've seen risk rating 5s come in this week for the first time since probably COVID, which is that risk rating 5, which says, you know, and there's not for everything, it's for market volatility. So that risk rating 5 means the value is saying, I'm valuing it at this, but there's a chance that might not be this in a few months time. Yeah, well, so basically tomorrow, we're going to our broker room, we're getting valuations on our whole portfolio, aren't we? We're to extract some equity before conditions potentially get worse. If that's your profile. So if you're somebody who, you know, is a seasoned investor, yes, this is definitely... I'm probably asking a question for the investor. Yeah, probably for the investor. I think the seasoned investor is time to look at your portfolio. I mean, if you've got one year left on your interest only periods, make sure that changes to 5 very shortly. Because it can get harder to borrow the more properties you hold,

36:06you know, whether it's two or three, the harder these things get to do, especially when rates go up. And we just had our second rate rise. When rates go up, it goes up across your whole portfolio, so for an investor, it's not about the cost, it's about your borrowing capacity. Yeah, yeah. And that gets really shaken. And I think this may be a story for another day, but my feeling on all this is building supplies, lack of transportation through these hard times with what's happening in Iran, et cetera. It's affecting building. It's affecting new dwellings. It's affecting supply. Supply is already low. Demand might drop off, but I think we need to be as a savvy investor. We need to be in a position where we're cash heavy, we've got our borrowing, we've got our equity out. The week and act on this ASAP when the time comes, because there's a lot of them that won't have their ducks in the row that can't do any acting. Yeah, and when we do say that three months emergency fund

37:07for an investor, that's across your entire portfolio. Yes, yeah. So before tax, it might cost you 30 grand a year to hold. After tax, it might cost you 20 grand a year to hold. You need to have those buffer amounts ready to go for the next two years, or 12 months at least, and you need to know what your forecast savings are going to be as well. That's right. So not saying not to fix for investors, but you've got a different thing to consider and probably a conversation to have before you press that fix button. There's just more moving parts. There are. Yeah, you've just juggling a few, I suppose, balls in the air, and you just need to be on top of it, and to be able to pivot and have it a really good, again, re-integrate a really good team of people around you to guide you through that with options. So Rachel, a couple of myths for fixing loans. What's your biggest myth with fixing loans? Oh, so the biggest myth that I see with fixing loans is that people think that if they fix a break of fixed rate, and they stay with that bank, the bank might waive their fixed rate.

38:08Oh, and can I? That I've never seen it happen. I've never seen a bank say, oh, we want to keep your business, we're going to waive that fee. It doesn't happen. So the biggest myth from my perspective is that you think that that break fee will get waived. If you break a loan, you're going to pay it. No loyalty. What's your biggest myth for fixed loans? I think a lot of people out there still think that fixing loans they'll win. They'll beat the banks. And they may well. They may win in their own mind with their certainty of like, I can sleep at night because I know that that's the repayments that I'm going to make. And I'll stick to it. And I'm really comfortable with that. But will they beat the banks? Generally, I'd say no. Going back to my uncle from 40 years ago, I'd say, yeah, generally, we don't win. Yeah. And when it comes to fixing, I want to give my top tip. So my top tip for fixing, I did mention before, but I just want to really reiterate, the carded rate isn't always the rate. Yeah, that's that. You want to make sure if you're going to go into a contract for fixing that you get the best rate that you can. So you need to check it out.

39:10What else can that bank offer me before I get into the contract? Yeah. And I like the split loan aspect. You might just say, well, okay, I'll fix 50% of it. And I'll keep the other 50 variable. Like, it's like putting red on a black rider because say no, you mentioned before, but yeah, I do like that option as somewhere in the middle for some money. Yeah. If you're really keen on it. And just touching on the psychology of fixing. So we talk about fixing, we're not doing it to save money. You've said, you know, you don't do it to save money. You do it for certainty. So if rates go down and you are fixed at a higher rate, don't regret it. Don't think, oh, I'm paying more than what the rate is because rates have gone down and I wish I hadn't fixed. Just remember, when you fix, you're fixing for certainty of repayment. So you might pay a little bit less now. You might pay a little bit more later. But just know that don't let yourself get down if you don't make money on it. You're fixing to know to budget, to know what your repayment is for a period of time. And I think in some ways, the banks are doing the same

40:11aren't they? They're hedging their bets, saying right, we'll fix it at this rate, thinking that it may go up down a sideways, but they're also, it's also about customer acquisition for them. They might say, okay, I'll give them this rate to bring someone from this bank over to us and lock them away for three years. So there's a bit of that going on. A hundred percent. But whether you're doing fixed or variable which we've sort of covered today, I think the big call to action from today is that it's time to review your finances. It's time to call your mortgage broker and have a chat. If we are heading into a tougher time over the next six to 12 months, it's time to make sure that you've got everything in place now to ensure that you're going to have an easier time whether in the storm in the next 12 months if that's where we go. Unbelievable. That's great, right? Great piece on fixed loans today. Hey, jump on YouTube if you haven't already, get a have a look over there and see us in video style. But if you happy not to see our faces, then that's fine as well.

41:13Good chat. Thanks for jumping on, as always, Rachel. Yeah, great to see you. I like this new studio. Well, I like this studio. I like when I ask all the questions and you do all the answering. I just feel like Cal Stefanovic or someone. Anyway, I'm John Pigeon. This is Rachel Krun and he's in property. If you're looking to buy your first home, you need a strategy. Whether you're buying to live in or for an investment, my book, The Quick Start Guide to your first property, is for you. And if you're serious about building your investment portfolio, I've got a book for you, sort your property out and build a future. Both our books are available, wherever good books are sold.