5 year fixed rates thread

[WinstonWolfe]

83% of what??? someones little calculator... what uses stats and figures? that are 3-6 months behind that 8 ball....
Nath.

a bit harsh Nath......here, have a look at this....it all boils down to the interbank cash rate futures!!!!.....


Calculations for SFE Target Rate Tracker (Based on 30 Day Cash Interbank Rate Futures)

The expectation of a rate change by the RBA is calculated by taking into account the number of days the RBA Target Cash Rate is known versus the number of days in the month that it is unknown ie: the number of days before and after the RBA Board Meeting. By incorporating this time factor into a probability equation the following formula can be used to determine current market expectations on whether or not the RBA will change the Target Cash Rate:

rt * n b + {r(t + 1) p + rt(1 – p)} * na = X

Solve for p, where:
p = probability of rate change
X = current yield on 30 Day Interbank Cash Rate Futures
rt = current known Target Cash Rate (%)
r(t + 1) = expected new Target Cash Rate (%)
nb = fraction of month where target rate is known (ie: before RBA official rate announcement), eg: 2/31 for December 2003
na = fraction of month where target rate is unknown (ie: after RBA official rate announcement), eg: 29/31 for December 2003

 

[JIT]

And just interestingly, the leading 5 year fixed rate has gone from 6.19% pa to 5.79% pa over the last 4 months since this thread was started, so a drop of just 0.40%...

 

[Peter 14.7]

Which would indicate either:

1. the Banks guesstimated the likely drop in varaible rates am priced fixed rates
   accordingly to entice borrowers over and make more money before rates drop?
   
2. the Banks had no idea of the drop in variable and have not moved fixed rates much at all (like cards) and thus, will not move much or can move a lot

Interesting....

Another 0.5% this Week?

Peter 14.7

 

[LynnH]

Another 0.5% this week, Peter?

I think the RBA will, but the analysts seem to think either 'No change' or '0.25%'. But I've been wrong previously ..... so we'll wait and see!

Cheers
LynnH

 

[Andrew_A]

Anybody formed a strategy for when/if they are going to fix some debt?

I'm considering the period 5 or 7 years to fix something in the region of 50% of my debt, need to work out more details however.

 

[Property Meister]

I know this is going to be a difficult ask.....

however, if you are trying to get the lowest fixed rate for the longest period at the best time, would the following strategy be a good one, or is there any better (on the assumption that we are at the bottom or one more IR drop)

so the news today says possibility of a drop tomorrow.

ok so if they do drop it tomorrow or it stays the same, and assuming that you are confident that there can't be much lower, maybe one more...

would youtry to find out roughly when the IR drop or announcement would be, and say that was in 6 months time, in 5 months, do a fixed rate for 10 years, that way you can enjoy the low rate for 5 months, and then get 10 years at the slightly higher fixed rate. and then sit back and relax?????

 

[BoatBoy]

Westpac today Vs last month

Drops underlined in red

Dave

 

[danwatto]

I know this is going to be a difficult ask.....

however, if you are trying to get the lowest fixed rate for the longest period at the best time, would the following strategy be a good one, or is there any better (on the assumption that we are at the bottom or one more IR drop)

so the news today says possibility of a drop tomorrow.

ok so if they do drop it tomorrow or it stays the same, and assuming that you are confident that there can't be much lower, maybe one more...

would youtry to find out roughly when the IR drop or announcement would be, and say that was in 6 months time, in 5 months, do a fixed rate for 10 years, that way you can enjoy the low rate for 5 months, and then get 10 years at the slightly higher fixed rate. and then sit back and relax?????

I've been considering fixing for 10 years, but there's a couple of factors stopping me:
1. RAMS has the only "reasonable" rate, 6.19% and I don't want to use RAMS
2. During that 10 years if you want to use equity to re-invest or shop for valuations to maximise your equity, then you can't unless your existing bank will play ball. If they are inflexible you are stuck with massive payout figures
3. Fixed rates are so much higher than variable. i.e. bankwest is currently 4.92% variable for 3 years, which could go to 4.70% after today. That's a 1.5% difference between the best variable and the best fixed. The yearly cost makes me cry
4. Rates come down fast, but go up slow, so I think to increase 1.5% will take first some stability maybe 1 year of stability, followed by 1 year of steady increases. So I can see I will be losing money for at least the first 2 years of the fixed rate, maybe more.
Sure rates might go higher than 6.2 during that 10 years, but they won't stay higher for the full 10 years. It may go higher for 3 years, then variable rates may go lower again when the cycle reverses.

Sure it's not about beating the banks or making money, it's about "insurance" against rate rises. But it ties your hands a bit and it's damn expensive insurance. Something cheaper would be nice.

Because of the above I'm thinking of 5 year rates that are cheaper are better value for money, 5.74% St George is almost there. If a 5 year rate gets below 5.5% I'll fix half my borrowings.

 

[Ebbie]

I've been considering fixing for 10 years, but there's a couple of factors stopping me:
1. RAMS has the only "reasonable" rate, 6.19% and I don't want to use RAMS
2. During that 10 years if you want to use equity to re-invest or shop for valuations to maximise your equity, then you can't unless your existing bank will play ball. If they are inflexible you are stuck with massive payout figures

Hi danwatto, I have a couple of questions for you:

1. Just curious, what is your reason for avoiding RAMS?

2. If you fix your loan for 10yrs at a fairly low rate of 6.2% why would you have massive payout costs to break it later on (for a presumably higher variable rate)? The way governments are printing money at the moment I imagine we'll be facing high inflation once we start to recover from the current downturn so I can't see variable interest rates staying below 6% for long. I'm sure the banks would be happy to break your lower fixed rate at no cost???

 

[sparky23]

Also why do you think rates come down fast but are slow to go up - where were you last year?

 

[Ms Jade]

Apologies if this has already been posted but I just noticed that published 5 yr rate on the Westpac site is now 6.29% rather than 6.49% when I last looked. That means 6.09% on pro pack and only 0.1% to go until it finally has a 5 in front.

 

[redwing]

Have long term fixed rates pretty much found rock bottom?

Is anyone expected further decreases on the five year rate?

Banks are crying re: costs etc and at the end of the day serve the shareholders (especially major ones and directors ).

We are looking at the current fixed rates seriously at the moment and considering our scenarios moving fwd. As demand for these fixed rates goes up one would expect the banks to react, a number of thoughts are running through our heads though

Variable rates seem to hold good value at the moment and the bad news looks to continue on the world scene as well as at home, the economy seems to be getting worse. A couple of years at a low variable rate seems good value also, should we fix as a recovery gains momentum?


We are also aware that long term inflation will be an issue


which door..the red one or the green one....

interesting times

 

[Andrew_A]

Apologies if this has already been posted but I just noticed that published 5 yr rate on the Westpac site is now 6.29% rather than 6.49% when I last looked. That means 6.09% on pro pack and only 0.1% to go until it finally has a 5 in front.

Starting to get interesting those numbers, especially if this rally in pretty much everything shows itself to be sustainable.

I don't believe it yet and think the theme of reflation and higher variable rates is still some ways off. I will be trying to add a dash of timing into the mix which makes it a more complex question than just personal risk management when fixing rates.

Keith, what are your thoughts on the present situation?

 

[santaslayer]

Also, fixing vs job security? Anyone battling to juggle this?

I have an equivalent of 11 months worth of pay in cash as a buffer plus, in the event of a redundancy, about 5 weeks worth of annual leave plus the other benefits.

But this still aint helping my SANF.

 

[sparky23]

One day I think it is time to fix and the next day I have changed my mind again - its so annoying. I think the main worry about fixing would be if someone fixed, then lost their job and was forced to sell but couldn't afford to do that either because of the big break costs whilst the rates are low!

I noticed on the news today that media are pushing people to fix now citing the 'experts' as saying it is time to fix so you have to ask yourselves who is behind the push to fix and are they pushing because they think the variables are going lower and want to lock people in at higher rates, the line they are giving us is that the banks won't be passing on any more rate cuts even if the reserve bank cuts rates so who has decided that?

 

[THEHEATH]

Probably recommending because they know of the impending doom that awaits so many new home buyers once things start to go up again.

 

[boz]

I noticed on the news today that media are pushing people to fix now citing the 'experts' as saying it is time to fix so you have to ask yourselves who is behind the push to fix and are they pushing because they think the variables are going lower and want to lock people in at higher rates, the line they are giving us is that the banks won't be passing on any more rate cuts even if the reserve bank cuts rates so who has decided that?

Don't trust the expert Sparky!
I spend a lot of hours every day studing the markets and I can tell you that forecasting interest rates for mortgages or government bonds for over a week in the future is like gambling. All the experts have their ideas and more likely scenario. It could be that if you fix now for 3 or 5 years you'll end up at the expiry time to have to pay higher rates if the economy recover by then, while if you wait few month more then you'll get cheaper rates now and get few more months of cheap rates when the fixed time end up.
Anyhow, I give you 2 indicator to watch for the do yourself interest rates forecast.
The first one is the exchange rate, if the AU$ is strong or stable you are more likely to have low interest rates (and deflation), this is pretty much the situation at present. But if you see the AU$ dropping and specially if it does it fast and goes below previous lows then you've got to be worried about rates going up.
The second one is to watch the banks funding costs, I don't follow swaps and libor anymore and I prefer to check the government bond rates that are updated in real time during market opening time. Banks now get all their long term funding with government guarantee and pretty much the spread over the gov. bond is not changing very much and in the medium-long term it is more likely they'll pass on what the interest rates on gov. bonds is.
I'll attach the 2 chart for the 3 year Gov bond and the 10 year gov bond.
You can see that the lowest interest rates was back in december and now are at highest yield since then (at present about 4.6% for the 10 year bond term)


So "an expert" would probably tell to fix because the trend of long term rates is going up (price of bond going down), but there is no doubt we are still in deflation mode and if stock markets turn back down things might change. But the same expert would also tell you we got to the bottom and to buy shares again, would you do that? I don't
Of course there are other smaller factors but they shouldn't play a big role in the long term (and you can't evaluate them correctly anyway).

 

[Andrew_A]

....The first one is the exchange rate, if the AU$ is strong or stable you are more likely to have low interest rates (and deflation), this is pretty much the situation at present. But if you see the AU$ dropping and specially if it does it fast and goes below previous lows then you've got to be worried about rates going up...

Boz are you able explain the logic behind this?

As a macro novice my thinking was: Rising AUD = strong commodities = strong economy and higher/rising interest rates. Falling AUD (especially rapidly) = deflationary forces and sinking economy = lower pressure on rates.

I know there are volumes of information that influence these things that I'm not even aware of and would appreciate your view on the subject.

Thanks,
Andrew.

 

[boz]

Boz are you able explain the logic behind this?

As a macro novice my thinking was: Rising AUD = strong commodities = strong economy and higher/rising interest rates. Falling AUD (especially rapidly) = deflationary forces and sinking economy = lower pressure on rates.

I know there are volumes of information that influence these things that I'm not even aware of and would appreciate your view on the subject.

Thanks,
Andrew.

Well, for sure the AU$ is and will be linked to commodity prices, but, AU$ going up= strong economy is very debatable (look at Japan or USA these days with strong currency and weak economy), we are in a worldwide recession/depression and the rules are a bit different and for sure none will get a strong economy. What drives the interest rates on gov bonds in Australia, a part the increasing offer that the government is doing at present with those huge budget deficit, is by the interest international investor have to poor money into australia, more money come into australia and lower is the interest rates on long term bonds (more demand of AU$=lower rates on AU$ debt).
Deflation is a freaky stuff as it doesn't scare off capitals, Investors would think: inflation in Australi is nothing to worrie about? so holding AU$ is safe and interest rates on bond would inesorably drop (and value of all other assets including shares and property will drop). Also deflation is much more likely in those country with huge debt and big bubbles in need to bust (like australia, UK, USA etc.).
But the bottom line is that we are in experimenting zone and never before in History ever happen what todays central banks and government are doing and none can really tell how this big worldwide experiment will turn up in the future.
My opinion is that there is a no easy way out and very few people could end up saving most of their wealth. The best off at the end of all this could be just the one that have a very good usefull job.

EDIT: I am not saying that for sure with the AU$ dropping interest rates goes up, but there is a big chance they will (Kind of Iceland imploding risk because of high net foreign liabilities)

 

[Andrew_A]

From the following article: Lowest rates in 50 years

InfoChoice managing director Shaun Cornelius said about 40,000 customers rushed to lock in loans as fears rose last year about rates rising above 9 per cent. But if they now tried to refinance, some of those customers faced loan-break costs of $45,000 or more. "Both variable and fixed rates are pretty low but the three- to five-year fixed rates have been drifting up, so it may be that the best time to fix is now," Mr James said.

What evidence is there of the fixed rates drifting up?

A great example of how many people are caught leaning the wrong way at important turning points I thought, I remember the pressure to fix in 08 and am glad I was able to copper the public here and not fix, using my faster runner and the lion analogy and a coming recession. Silly or not I'm still 100% SVR. However there is a great fixing point coming soon enough perhaps?