3 & 5 year fixed rates thread

JIT said:
Why is that?
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Because the banks are always ahead on fixed rates. Think of it like this:

Say the economy is going down, variable rates are falling. Fixed rates fall to in anticipation of rate decreases in the future. Now, two scenarios can be played out here:

1) Once the economy looks like it is about to recover, the yield curve becomes positively sloped again. This means that fixed rates will go above variable rates, and even if you fix you will be paying a lot more than the variable rate with no guarantee that variables will go above the fixed rates. So banks win.

2) The economy gets worse, and rates fall. They will fall below what you fixed it at. You lose, banks win.

The exact same thing applies if the economy is booming and you want to fix your rates so that you are insulated from rising interest rates. Many, many people got caught up in this back in 2007/08 when they fixed rates at 8-9% only to see them fall down to their current levels of 6% today.

Plus, banks adjust their fixed rates all the time based on the money market and how the yield curve is looking. They will always give you a fixed rate when it suits them. You are betting against a company that makes it living off betting on interest rates - I don't like doing that. Plus you also have the other inconveniences of fixed rates like limited redraw, limited offset, break costs if you refinance/sell, no equity release etc.
 
Hmmmm.....sorry that is absolute BS....over the last 10 years...I have managed to fix at or near bottom.

It then put me in a great CF+ position over the next 2-3 years whilst rates go up. This has worked well for me.

Just remember 2-3 years are the sweet spot...anylonger or shorter...you will catch the higher rates.

The other thing is to ensure that your rates come in a spread...not all at once.

The last time I locked in was 2009 mostly for 3 years and it worked really well as rates started dropping in late 2011. I also locked a CF+ of 60+ plus for almost 2 years.

Aaron_C said:
Chasing fixed rates is like trying to chase rabbits down a burrow. Doesn't really lead to anything productive imo.
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sash said:
Hmmmm.....sorry that is absolute BS....over the last 10 years...I have managed to fix at or near bottom.
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No sash, you are incorrect. My analysis is not BS because that is how banks make money. You seem to think you are smarter than the banks - but for every person who 'beats' them, there are 99 others who don't. The numbers game always works in their favour.
 
Not really sure if they "beat" anybody, my understanding is the banks secure fixed term lending at a certain rate add their margin and lend out the money. they make money regardless of whether variable rates rise or fall.
 
banks funding is extremely complex and they raise funds from a number of different sources, rates and terms of finance. Fixed rates can be funded on a fixed term at a fixed cost hence they are priced differently so the bank adds its margin onto the cost. The funding cost is usually set by the market and not the bank itself.
 
Interestingly in 2009, St George also put out the lowest 5 year rate at 5.74% at the time, just before fixed rates started to move up again.
 
Here is a graph i compiled from RBA data and it is showing that historically fixed rates are looking cheap at the moment when you can get a 3 year fixed rate for 5.59%.

interestratehistory.png
 
I will add my 2 cents worth. Prior to being a mortgage broker I was for about 7 years a 90 day bank bill and 3 year bond interest rate futures trader with ANZ and the old JB Were and Sins (now merged with Goldmans). So I may be a bit more qualified to comment than some others, maybe not.

IMO you are not betting against the bank when you fix you are simply taking the money markets costs of funds + your banks margin as your %.

The reason the majority of people have lost by fixing over the last 2 decades is because rates in general have trended down since 1989 as the graph John provided clearly shows.

There have been periods when it has definately paid to fix. All through 2004,2005,2006 were good times to fix for 3 years or so. Then there was the 4.99% at the height of the GFC.

I think we are close to it being a good tme to fix but not quite yet.
 
Marty McDonald said:
I will add my 2 cents worth. Prior to being a mortgage broker I was for about 7 years a 90 day bank bill and 3 year bond interest rate futures trader with ANZ and the old JB Were and Sins (now merged with Goldmans). So I may be a bit more qualified to comment than some others, maybe not.

IMO you are not betting against the bank when you fix you are simply taking the money markets costs of funds + your banks margin as your %.

The reason the majority of people have lost by fixing over the last 2 decades is because rates in general have trended down since 1989 as the graph John provided clearly shows.

There have been periods when it has definately paid to fix. All through 2004,2005,2006 were good times to fix for 3 years or so. Then there was the 4.99% at the height of the GFC.

I think we are close to it being a good tme to fix but not quite yet.
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Thanks Marty.

I also think that one shouldn't necessarily aim to wait for the absolute bottom to occur, eg. a 4.99% 3 year rate.

Fixing some loans for a rate around 5.5% seems reasonably prudent.

The risk being that these medium-term rates can quickly go the other way, and 5.5% today may become 5.99% again in a week's time, and the 4.99% rate you were hanging out for may never come.
 
JIT said:
Thanks Marty.

I also think that one shouldn't necessarily aim to wait for the absolute bottom to occur, eg. a 4.99% 3 year rate.

Fixing some loans for a rate around 5.5% seems reasonably prudent.

The risk being that these medium-term rates can quickly go the other way, and 5.5% today may become 5.99% again in a week's time, and the 4.99% rate you were hanging out for may never come.
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I fully agree on this. coincedently St George has just sent an email today offering free rate lock for the next month or so
 
No, people have lost money on fixing because yield curves are always positive sloping in times of neutral/tightening monetary policy. The economy is, for most of the business cycle, in this stage of monetary policy. So you are always fixing your loan above the SVR if you want that 'certainty'.

In contrast, the current falling interest rate environment is an unusual occurrence because the yield curve is sloping downward. That would be the more optimal time to fix rates (forgetting the other non-rate related drawbacks) because this does not happen frequently at all.

And yes, you may not be winning against the bank directly (you agree to pay X%, they lend to you at X%) BUT it is all relative to the variable interest rates. Otherwise how would you judge whether fixing is a good/bad thing in hindsight? The simple fact is that banks will 'win' the majority of fixed rate loans relative to the amount you'd pay under a variable rate for the exact reasons I specified previously. The ambit of the transaction extends far beyond the actual fixed rate transaction itself as we are all talking about the relative merits/drawbacks of fixing your loan. Isolating it to the transaction itself is just nonsense and means nothing.
 
Fixed rate

Hiya

I was one of the "lucky" ones who "beat the banks" a few years ago at 4.99%...luv it luv it luv it:D

So if Westpac can shift fixed rates to match St George i will go for it...even if rates go further down, i can deal with it...it is low enough to make ME happy:p

And no, do not want to refinance to St George as WBC has been a great partner for me in my investing journey (i know, i can't believe what i am saying myself:p) but one has to be fair eh?
 
virgo said:
And no, do not want to refinance to St George as WBC has been a great partner for me in my investing journey (i know, i can't believe what i am saying myself:p) but one has to be fair eh?
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If you are happy with them then just stay haha but they don't compete with themselves because that's just stupid!
 

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