Commercial Property Loans: Fixed Rate for How Long?




IN PART 1, we gave you some advice if you are deciding whether or not to fix your loan.

Today, we continue where we left of with three guidelines to help you avoid a few more common pitfalls when it comes to fixing a loan.

Do Not Fix for Excessive Periods

It is possible to fix for over ten years. But you should only fix your loan for up to 3 years (or in some very rare cases 5 years) because fixing severely limits your flexibility.

If you want to sell or refinance your property, there are serious penalties for breaking a fixed loan.

The penalties increase significantly with the length of the fixed rate period.

Only Fully Fix Investment Debt

As owner-occupied debt is not deductible, your priority should be to pay down this debt as quickly as possible. Therefore, it is not a good idea to fully fix your home loan.

If you want to safeguard yourself against future rate rises for an owner-occupied loan, you can investigate splitting your loan — with part fixed and the remainder variable.

For Commercial Properties, Fix for the Term of the Lease

For commercial investments, fixing the loan for your lease term will give you the benefits of being able to budget for your cash flow.

And the flexibility to do what you like at the end of the lease — if the tenant does not re-new.

BOTTOM LINE: Fixed rate loans can be a good way of locking in a positive cash flow or insurance against rate rises.

However, you should only use them if there is a low chance that you will need to discharge the loan during the fixed period.

If you are considering fixing your loan, it is always a good idea to get professional advice for your personal situation.


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