Commercial Property Loans: To Fix or Not to Fix?


INTEREST RATES REMAIN at historically low levels. And the competition for business between banks and non-bank lenders is fierce.

As a result, you can find some very attractive fixed rate options in the market at the moment.

However, if you are considering fixing an existing loan or taking out a new fixed loan, you must understand some fundamental rules that govern these loans.

The following guidelines will help you structure your fixed loans to provide the most benefits for both your residential and commercial investments.

For commercial investments with longer lease periods where you have a secure lease in place … fixing is a more attractive option. Because positive cash flow can be locked in for the period of the lease.

Do Not Try to Beat the Market

With very rare exceptions, the banks will set their fixed rates and earn a margin over the period.

Banks are by no means infallible with their forecasts, but they are risk averse.

And you can be sure that, when they set their rates, they expect rate movements to be strongly in their favour.

Therefore, setting a fixed rate against the market is, more often, a losing proposition rather than a winning one. That is not to say that fixing is never a good idea.

Fixed rates are best looked on as an insurance policy — that can lock in a repayment for you for a set period.

Fixing the mortgage on an investment property that is delivering reliable rental income will help you plan your cash flow. As your repayments are locked in during the period.

If You Need Flexibility, Don’t Fix

As a general rule, breaking fixed rate loans will incur heavy break costs — the lender may make exceptions if there have been sharp rate increases above your own fixed rates.

For this reason, it is not a good idea to lock in a fixed rate if you are unsure of what you want to do in the near future.

Do not fix if there is any chance that you will sell, increase you loan amount or change your the loan structure.

BOTTOM LINE: Following these guidelines will go a long way towards structuring your fixed loans in a way that will benefit your property investments.

Make sure you read Part 2 of this series, as it will cover a few more useful tips to help you decide whether to fix your loan or not.?


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