5 year fixed rates thread

[House_Keeper]

It seems like we're going into circular conversations in this thread, with the same arguments re-hashed again and again.

As far as I can tell, you can choose either for fixed rates if you need predictability, or for variable rates if you prefer to have more flexibility and lower rates over the long term.

You can debate whether now is the right time to lock in a long-term rates for as long as you want. At the end, it makes not much difference. Nobody really knows what's coming up ahead. Those who have fixed their rate don't really care. Those who are on variable rates hope that variable rates won't go up too soon.

As far as I am concerned, I have fixed half of my debt for 10 years. I don't really know whether I picked the low point in the cycle. I know that, at that rate, the properties will be cash-flow positive for the next 10 years. So I can go on chasing other deals without having to worry about what might happen when interest rates go up.

The point of this being, what matters is not what might happen to interest rates, but what your strategy is and whether fixed or variable rates suit your strategy. Variable rates is a lot more flexible, there is no break fee. But it comes at a cost of higher volatility, meaning higher risk.

The question is not which is better but which one do you prefer. It's a matter of taste.

Cheers,

 

[joeExpat]

As far as I can tell, you can choose either for fixed rates if you need predictability, or for variable rates if you prefer to have more flexibility and lower rates over the long term.

Not always, last time I fixed the rate over the term was lower than the average variable rate, and I expect the same this time (I fixed again last month for 5 years).

 

[House_Keeper]

Not always, last time I fixed the rate over the term was lower than the average variable rate, and I expect the same this time (I fixed again last month for 5 years).

That's right, fixed rate isn't always cheaper.

I as referring to long-term averages.

You can beat the long-term averages with the right timing.

Cheers,

 

[Peter 14.7]

I am starting to feel we may have seen the last rate drops. Yes, I know I predicted more but this recession appears to be a no-show!

Unless we see jobs being wiped out in big way, like predicted, then the next risk is that inflation is back and rates will rise. Thoseon 6.19% for five years may be sitting pretty.

If so it proves these experts get it wrong more than right.

IMO the next test is GM chapter 11 and the effect this has on the world. If the world shrugs it off then we are very unlikely to see any major issues here.

I always said June/july was the time to fix but then I read there is more Gloom. But that Gloom is a mirage so far.

BTW great post House Keeper. Peter

 

[DanielG]

Seriously, you guys are as bad as the stock market watchers. As soon as there is a hint of an upturn you guys freak out. This recession has a long way to go, and mark my words, Australia now stands at the precipice, it is going to be a long slide down from now on. Wait for it.

 

[The_Bludger]

Australia now stands at the precipice, it is going to be a long slide down from now on. Wait for it.

Yep, you're right. Gonna put all my properties on the market tomorrow and then hide all the cash under my lemon tree. Thanks for the heads up Dan.

By the way, who is leading the interest rate race for 5 years fixed? Starting to look at another IP.

 

[steveadl]

Gonna put all my properties on the market tomorrow and then hide all the cash under my lemon tree.

Not if I do it first, those buyers are mine!! *rushes out to call realestate agents*

 

[DanielG]

Yep, you're right. Gonna put all my properties on the market tomorrow and then hide all the cash under my lemon tree. Thanks for the heads up Dan.

By the way, who is leading the interest rate race for 5 years fixed? Starting to look at another IP.

You totally misunderstood me. I was actually saying that this downturn thats about to occur is a GREAT thing, interests rates are on their way down. Since this topic is about fixed rates, I was saying its actually beneficial as it will reduce the 5 fix rate.

Whoever sells residential properties during a downturn obviously has no concept of the market.

 

[steveadl]

Hopefully I'm wrong, but I think we saw the bottom of fixed rates couple months back.

 

[Ms Jade]

^Agreed. All my fixing is done, except 1 chunk that doesn't come off until early 2010. Bit worried about how high 5yr rates will be by then.
As I have mentioned before, what interests me is whether the long-term rates have permanently decoupled from the cash rate. I guess time will tell...

 

[The_Bludger]

You totally misunderstood me. I was actually saying that this downturn thats about to occur is a GREAT thing, interests rates are on their way down. Since this topic is about fixed rates, I was saying its actually beneficial as it will reduce the 5 fix rate.

Whoever sells residential properties during a downturn obviously has no concept of the market.

Oh, sorry Dan. My view is that IR rates have bottomed as well. Good thing I locked in at 4.99% for 3 years a few months ago though!

Now I'll be paying almost 2% more for 5 years. :-(

 

[DanielG]

Well I have my ear close to the business sector and they all say the same thing, its coming. Well be the last into the recession, we also will be one of the last to come out of it.

But we'll see. For me, watching a recession unfold is interesting, I see it as a learning curve to see how to combat future recessions. Im still young

 

[keithj]

^Agreed. All my fixing is done, except 1 chunk that doesn't come off until early 2010. Bit worried about how high 5yr rates will be by then.

Wise move IMO Ms Jade. This graph shows the yield on todays 5 yr bonds (red) & 30 day money (blue). The low point of 3.26% was on 2nd Feb, today's yield is 5.07%. That's 1.8% higher in 4 months - the banks haven't passed on 1.8% of fixed rate increases.... yet.

As I have mentioned before, what interests me is whether the long-term rates have permanently decoupled from the cash rate. I guess time will tell...

I'd be v. suprised if it was a permanent decoupling. Looking back at history, the smart guys tend to look ahead. See the start of the fall in the 5 year rate in June 08 - it was about 6 months ahead of the 30 day rate falling. I'd expect the upturn in short term rates to be within 6-9 months. Interestingly, the 5 yr yield is rising as quickly as it fell.....

The SFE yield curve on Friday indicated the possibility of no more cuts in the cash rate - this is for the first time this year. There are plenty of leading indicators out there that imply that the cycle is turning. Of course, trailing indicators like unemployment will be a favorite of the D&G headline writers for a while yet.

 

[Witzl]

i definitely think we have seen and passed the bottom of the fixed rates for this cycle. ALL of the banks have increased their fixed rates now, and already we are seeing indications that the cash rate has also hit its bottom (or damn close to it).

The smart money locked in 2-3 months ago... the not-quite-so-smart money (me) is locking in now.

 

[Aaron Sice]

same here Witzl.

 

[BayView]

The smart money locked in 2-3 months ago... the not-quite-so-smart money (me) is locking in now.

Don't be too hard on yourself W.

You waited until the trend turned upwards, so you may have missed the bottom, but not by a lot.

The fixed rates are still very low and attractive. I'm sure your SANF is still good?

Like Warren Buffet said; "I made a fortune out of buying too late and selling too early".

I've opted to stick with variable as our rate is a decent chunk lower than the fixed, and we have a bit of money in loans these days.

To shift UP to a fixed rate for us would cost a fair bit of dough - especially if the variables remain low untl the end of the year, so we are staying variable and will plow a shizen-load of funds into debt reduction.

We will be allocating the same amount of funds as we would have to if we fixed, but the rate is lower so the debt will decrease.

By my guess, the variables will take another 12 months to overtake the fixed, and by that time we will have saved the difference and more by a fair margin.

 

[Strannik]

variable for me, at least until there are indications that it will go up

 

[buzzlightyear]

variable for me, at least until there are indications that it will go up

Could be sooner than you think - CBA doesn't rule out SVR rate increases before next month

 

[keithj]

Todays unexpectedly good employment figures have had an impact on the likelihood of variable rates staying low for an extended period.

The SFE yield curve for today implies that we're unlikely to be getting any cut in the cash rate, and that the RBA may start increasing in December, and is highly likely to increase in Feb 2010. And a further ~0.25% every 2 months after that for the medium term.

Looks like variable rates will be following fixed rates sooner rather than later.

 

[WinstonWolfe]

and the extent of today's move in the 30d yield curve can be garnered from this graph.

nevertheless, imo it is all derivative green shoots hype and spin.
The Australian curve is just following the US trend...

TNX, the US 10 year govt note yield has been rising steadily for months....

but the real catalyst for today's Aussie cash action was last night's US 30 yr bond yield....the day's high is ominous.....