5 year fixed rates thread

MC1 said:
RateCity tips variable over fixed
Wednesday, 05 August 2009
Money markets are expecting interest rates to rise by more than 1.5 percentage points within a year after the Reserve Bank of Australia (RBA) governor Glenn Stevens said yesterday that the economy had proved much stronger than expected.

According to RateCity, the market is expecting interest rates to rise by up to 2 percent gradually over the next five years, which would take the average standard variable interest rate from 5.25 percent to 7.25 percent.
Click to expand...

Interesting post and if correct, confirms the advantage of fixing now is not there. The market has already pricing in the future. So if you feel like me, the market is overly optimistic then staying variable makes sense.

I do acknowledge that the market is almost always wrong to some % so there is a risk the Economy is all much better that anyone expects and inflation goes off and rates must rise to counter.:(

I do think we all agree on one thing, being into IP at this moment is a great investment.

Exciting times hey?:D

Peter
 
Peter 14.7 said:
I do acknowledge that the market is almost always wrong to some % so there is a risk the Economy is all much better that anyone expects and inflation goes off and rates must rise to counter.:(
Click to expand...
Hi Peter,

I don't see that as a sad face outcome... ;)

This was the point I made early on in this thread. If you stay variable then you win either way, either in strong market fundamentals driving your capital appreciation or in weak market fundamentals holding your interest rates down and improving your cash flow.

i.e. We get a Win/Lose or a Lose/Win. But by staying variable you avoid the risk of a lose/lose whereby you get weak market fundamentals and end up not getting the capital gains and paying too much for your interest rate at the same time. The flip side to this of course, as Keith alluded to, is that you also lock yourself out of getting a win/win whereby you get stong market fundamentals and get both good capital gains and a low interest rate.

I'm a bit conservative so figured staying variable means I win one way or the other. If the market picks up quickly and rates rise then I'll hapilly pay that servicability premium for the increased capital gains I'll be making! :D

Helps my personal SANF to know I'm going to win one way or the other and servicability is not an issue as I will be neutral through to 7.5% rates once Mona Vale is developed. And at present its only 1 IP and my salaried income means rates aren't an issue at all...

Cheers,
Michael
 
keithj said:
  • If you can pick the right time to fix, you get to manage your risk and get a benefit from lower repayments over the term.
  • You rarely see professional investors using variable rate loans. They don't have the luxury of putting in an extra shift or missing out on this years O/S holiday to pay for a couple of rises in the cash rate. They fix to lock in their cash flow.
Click to expand...


  • Agree and that is my strategy exactly.

    I just think at the moment the market is pricing in future growth based on past economic activity that was largely a result of world gov stimulis and spending. It is also pricing the future on this base activity being
    1. sustained
    2. built upon

    However IMO at the moment the economy is so far out of kilter form fundamental demand that any call is very questionable and of the two, likely to be lower than higher.

    I note RBA gov after talking down and then up rates, is now going back to a " i said nothing" stance. I think the RBA comments are mostly market confidence. Actual sales, employment, activity and demand are the keys.

    Peter
 
MichaelW said:
Hi Peter,

I don't see that (INFLATION )as a sad face outcome... ;)
Cheers,
Michael
Click to expand...

Unless we get Stagflation.:eek:

caused by (in Wikipedia);

stagflation can result when an economy is slowed by an unfavorable supply shock, such as an increase in the price of oil in an oil importing country, which tends to raise prices at the same time that it slows the economy by making production less profitable.[5][6][7] This type of stagflation presents a policy dilemma because most actions to assist with fighting inflation worsen economic stagnation and vice versa. Second, both stagnation and inflation can result from inappropriate macroeconomic policies. For example, central banks can cause inflation by permitting excessive growth of the money supply,

http://en.wikipedia.org/wiki/Stagflation

Very close to what some ecnomists see coming, Peter
 
Peter 14.7 said:
And there is issue with predictions. We all know "the only constant is change".

Peter
Click to expand...

Indeed....from the above link

"The Australian Bureau of Statistics formerly produced a composite leading index for Australia but discontinued the index in 2003 citing the poor performance of the leading index in recent years and the difficulty of completely overhauling the index"
 
Wow!

Now unemployment has stopped rising. Steady this month at 5.8%!

Unemployment stays at 5.8%

If this keeps playing out as it looks then we're in for some really solid economic upside in Australia. Keith might wll have called it correctly, but only time will tell... I'm still happy staying variable for now as the RBA is in a bit of a bind on where to move rates.

Cheers,
Michael
 
You guys cant be serious. Unemployment is trending upwards and i'd say the one month 5.8% result is a temporary result of stimulus and grants etc.

Why does everyone get so excited about a minor statistical result like this?

Do you expect it to top at this level, fall or keep rising?
 
WinstonWolfe said:
Hey and we did that by working
- 6,600,000 less seasonally adjusted hours in July cf June.
- 45,000,000 less this july cf last july.

So how does that effect $s circulating in the economy?


Click to expand...

Thanks WW. Makes me think of two quotes:

There are three kinds of lies: lies, damned lies, and statistics.
Leonard H. Courtney

Thats just statistics. 2/3 of everyone knows you can prove anything with statistics. Homer J. Simpson

Peter
 
So my very simple way of looking at the decision on whether to fix or not is as follows.

1) During the last interest rate cycle the RBA increased rates 12 times, each time by 0.25%, over the 6 year period from 2002 to 2008. I think we'd all agree that that period was a reasonably strong economic boom, which we might match but probably won't exceed for the next 6 years. Therefore my personal assumption is that interest rates will again rise by 3%, in 12 steps, from 2010 to about 2013. (A shorter period than the last cycle, to be conservative)

2) The current spread between variable and 5 year fix is over 2% - my variable is currently 4.94% and I don't think I could get a 5 year fix for less than 7%.

3) So I'd be paying more than 2% extra now, for a maximum benefit of under 1% in say 3 years time.

Doesn't stack up for me....perhaps if I'd jumped on at 6.2%-6.3% it would have been different. (Was that available a few months back?)

Now I've never had to pay a mortgage rate of 17%, so I can only imagine the pain that caused some people, but we are in very different times from the late 80s, so I'll stay variable, thanks very much.
 
yep i jumped in nearly 2 months ago - i missed the dead bottom, but was only 1 or 2 increments above the dead bottom:

PPOR - 4 years, 6.44% CBA
IP1 - 3 years, 5.94% NAB
IP2 - 3 years, 6.04% CBA

We fixed purely as cashflow management - we saw rates as being historically VERY low, and fixed rates equally quite low and still quite affordable for us. So, we locked.
 
I think we agree anyone who locked a while back did well. My trouble is I am with CBA and being a market monster they have no reason to offer decent fixed rates. So be it... I may even selll some IPs when they stop rising when rates go up and the "Herd" follows.

Peter
 
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