5 year fixed rates thread

[JIT]

Have a look in today's newspapers as to what the banks are prepared to pay for three year term deposits.

Ask yourself what it might saying about where they think rates will settle.

Sorry, I'm not that clever...can you explain what you mean by this?

Where are rates going to settle?

Thanks.

 

[JIT]

Yes Home Loans 4 years fixed at 5.96% pa, and 5 years fixed at 6.10% pa.

And "AMO Group" also 5 years fixed at 6.10% pa...so that's the leading 5 year rate at the moment...

 

[Bon]

Banks are obviously not going to pay more than what they can get wholesale funds for... so if the deposit rates are significantly less than the interest they are charging you, the difference is where their profit comes from.

It's similar to the spread in exchange rates, or a tiny edge a casino has in its games...

 

[Token Funder]

Sorry, I'm not that clever...can you explain what you mean by this?

Where are rates going to settle?

Thanks.

There are three year term deposits at 5% today. If you're paying 5% for your cash for three years, what would you need to lend it at. What does that mean for the probability of sub-5% fixed rates?

Just sayin'

 

[JIT]

There are three year term deposits at 5% today. If you're paying 5% for your cash for three years, what would you need to lend it at. What does that mean for the probability of sub-5% fixed rates?

Just sayin'

Aha...but I'm not sure what the banks' margins are?

I'd be happy with sub-6% 5 year fixed rates...and as I've posted, we're now at 6.10% pa here...so not very far off (& 4 years at 5.96% pa).

I would think that the odds are pretty good for sub-6% aren't they?

 

[sparky23]

Yep!

Like he says.

 

[nonrecourse]

There are three year term deposits at 5% today. If you're paying 5% for your cash for three years, what would you need to lend it at. What does that mean for the probability of sub-5% fixed rates?

Just sayin'

Hi Toke;
We both know that when the punter fixes his rate the bank wins 19 times out of 20. The bank doesn't lose on the one the punter wins on either does it?

 

[BoatBoy]

Hi Toke;
We both know that when the punter fixes his rate the bank wins 19 times out of 20. The bank doesn't lose on the one the punter wins on either does it?

Theres been more than a few people who locked in low last time they were low and came out of the term just in time for them to be low again, so it can be done.

Dave

 

[sparky23]

Yes that happened with our St George 3 year fixed, we went in at 6 something and came back out at Christmas at 6 something.

 

[boz]

There are three year term deposits at 5% today. If you're paying 5% for your cash for three years, what would you need to lend it at. What does that mean for the probability of sub-5% fixed rates?

Just sayin'

it is more complicated then that, there is a thread about bank funding cost in property economics that explain a bit more.
Anyway you have to consider banks get proabably around 50% of the money from deposit and get a lot of money from the taxpayer backed bonds that banks are selling to overseas investor, probably at a spread of over 100 bp more then the fixed government bond (that for the 5 year today stand at 3.58%).
In any case the variable rate will get much cheaper then the fixed rate (for example the 1 or 2 year government bond stand at 2.57% wich is 1% less then the 5 year. So it is a difficoult decision to fix the rate and pay much higher interest rates at present. At the end of the day the decision is based on the usual balance of greed and fear

 

[BoatBoy]

Aussie have just or recently changed theirs down

Screen dump for Jan and Feb

Dave

 

[steveadl]

There are three year term deposits at 5% today. If you're paying 5% for your cash for three years, what would you need to lend it at. What does that mean for the probability of sub-5% fixed rates?

Just sayin'

TF, I'm going to ask a follow up question as I hear this stated a lot when talks come to interest rates.

Correct me if I'm wrong. Yes the bank is paying the depositor 5% for 3yrs on the cash (let's say $100k). But they don't just lend the cash straight back out 1:1 do they - for every $1 they have in deposits, don't they get to lend $5 (or similar ratio)?

My point is, if they are paying 5% on $100k deposited, but lending out $500k even at the same 5% - they're still going to make money.

As I said this is just my basic understanding, so please point out if I'm wrong, and obviously this is only talking about funds lent out on their deposits not from borrowing in OS markets etc which I know is also part of the equation.

 

[Peter 14.7]

Hi Toke;
We both know that when the punter fixes his rate the bank wins 19 times out of 20. The bank doesn't lose on the one the punter wins on either does it?

Agreee with a disclaimer*

yes, average Joe nevers locks when rates are low. Yet panick locks when rates are high , they make decisions based on past history, not probable future. That is why they buy when prices are already booming and sell when the market has crashed. I.E. I remember dragging my bogan sister to locking at 6.95% (to her protest but it is 0.2% above what I pay now). That was End 2003. Sister was saved losing her house!

Wise investors are different.

I have beaten my bank on number of times fixing rates. I think if we polled wise investors it would be 50% plus not 5% as 1 in 20 is.

Like BBoy says I locked in August 2003 at 6.19% for five years. Came out at 8% plus and now is 6.04% and going to be 5% in few weeks. All good.

This thread is all about when it the best tome to fix when hardly anyone in the media is talking fix rates, We are savvy bunnies here.

Peter

 

[Peter 14.7]

TF, I'm going to ask a follow up question as I hear this stated a lot when talks come to interest rates.

Correct me if I'm wrong. Yes the bank is paying the depositor 5% for 3yrs on the cash (let's say $100k). But they don't just lend the cash straight back out 1:1 do they - for every $1 they have in deposits, don't they get to lend $5 (or similar ratio)?

My point is, if they are paying 5% on $100k deposited, but lending out $500k even at the same 5% - they're still going to make money.

As I said this is just my basic understanding, so please point out if I'm wrong, and obviously this is only talking about funds lent out on their deposits not from borrowing in OS markets etc which I know is also part of the equation.

And may i add the bank may take the $100k and loan $20k at 4% to a high value client for PPOR, knowing that client has a $50k bus overdraft at 12%, a CC bill of $30k at 20%. OVerall they are still miles ahead and they can sell the PPOR home loan in the market at 3% to someone in Japan due to the low risk. They make another 1% on that.

 

[JIT]

In the last 2 months since this thread was started the best 5 year fixed rate has gone from 6.69% pa to 6.10% pa...very slowly coming down...

ADD:

And from another thread, going from variable to 5 years fixed without changing loan limits is unlikely to prompt a credit review apparently ...

http://www.somersoft.com/forums/showpost.php?p=507411&postcount=23

 

[Y33]

Peter14.7,

I guess I have been one of the lucky ones locking in at 6.49 3 years ago and expires this March just in time for some low variable before locking in again. The one before that was low 5's after coming off a honey moon rate in the 4's. Very very lucky.

 

[Nth Brisbanite]

Peter14.7,

I guess I have been one of the lucky ones locking in at 6.49 3 years ago and expires this March just in time for some low variable before locking in again. The one before that was low 5's after coming off a honey moon rate in the 4's. Very very lucky.

Your post reinforces my view that fixing a loan is fraught with danger. The great majority lose out while the banks think it is great. A friend of mine fixed for 5 years at about 9%; it's going to cost him over $25,000 in break fees but even then he thinks that it may be worth it as rates will continue to be cut over the next few months.

Your use of the word lucky is very appropriate. Fixing is akin to betting at the TAB in that most punters lose out while the TAB always wins in the long term.

 

[imonmyway]

Your post reinforces my view that fixing a loan is fraught with danger. The great majority lose out while the banks think it is great. A friend of mine fixed for 5 years at about 9%; it's going to cost him over $25,000 in break fees but even then he thinks that it may be worth it as rates will continue to be cut over the next few months.

Your use of the word lucky is very appropriate. Fixing is akin to betting at the TAB in that most punters lose out while the TAB always wins in the long term.

If you calculate the extra interest on 25k or the interest you would have earned if you had it in the bank say at 5% over the same period do these large break fees really work out for people or is it just something you have to wear?

I stayed on variable not because I was to smart but because I was to slack to organise it.

 

[BoatBoy]

Aussie have just or recently changed theirs down

Screen dump for Jan and Feb

Dave

ME have just dropped their fixed rate, but yet to drop Variable, apparently it will be announced today.

Screen dump Jan Vs Feb

Dave

 

[JIT]

Your post reinforces my view that fixing a loan is fraught with danger. The great majority lose out while the banks think it is great. A friend of mine fixed for 5 years at about 9%; it's going to cost him over $25,000 in break fees but even then he thinks that it may be worth it as rates will continue to be cut over the next few months.

Your use of the word lucky is very appropriate. Fixing is akin to betting at the TAB in that most punters lose out while the TAB always wins in the long term.

Fixing rates for multi-IP owners is more about risk management (managing debt levels and interest rate risk) and SANF than $ savings and outsmarting banks.