From: Jas
From today's SMH
Anxious borrowers beware: time to lock in a rate is long gone
By John Garnaut
June 20 2002
Those considering locking in a fixed rate for their home loan should think twice.
The big banks have more than doubled their margins on fixed home loan rates in recent weeks, taking advantage of anxious borrowers who seek to insure themselves against rising variable rates.
Falling for today's advertised fixed rates may only ensure the banks improve their bottom line.
The perception of rising rates has allowed banks to raise rates and attract borrowers at the same time, while the banks' actual lending costs have unexpectedly fallen.
"If you're trying to take the gamble on coming out ahead with fixed rates as opposed to variable, then the best time to fix is long gone," a spokesman from Infochoice said.
Commonwealth Bank lifted its three-year rate from 6.59 to 6.89 per cent three weeks ago, and since then National Australia Bank has lifted its effective three-year fixed rate by half a per cent to 6.89.
But in the three weeks since the CBA lifted its rates by 0.3 per cent, the banks' underlying borrowing costs in providing the loans fell by around 0.3 per cent.
The fall flows from unusual activity in international financial markets. The costs of borrowing on the bond market - where banks "hedge" the loans they provide to home owners - has plunged because of uncertainty in the United States.
ANZ's mortgage analyst, David Munro, said ANZ fixes its home loan rates at a margin above the relevant bond market rate. Recently the Australian market seemed to be 0.8 per cent to 1.1 per cent above bond market rates.
Mr Munro said the size of the margin is determined by the level of competition as well as the bank's own costs.
Bank sources revealed that a true "competitive margin" for fixed rate loans was more like 0.5 per cent.
For fixed loans over one to five years, the margins between banks' rates and the underlying costs of borrowing have ballooned to about one percentage point, or double the "competitive" level.
Margins on the less common 10-year fixed rate loans have blown out to about four times the competitive level, providing the banks with a neat 1.9 per cent layer of winter fat.
The recent trend is in contrast to patterns over the last few years, which show that margins on fixed rate loans have on average been more competitive than margins on variable rate loans, though the terms of variable rate loans tend be far less restrictive than fixed rate loans.
If a reversal in the bond markets fails to squeeze the current wide margin in the next few weeks, competition probably will.
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Profit taking above and beyond the call of duty? The banks? Never!
Jas
----------------------------------
When facing a difficult task, act as though it's impossible to fail. If you're going after moby dick, take the tartar sauce
From today's SMH
Anxious borrowers beware: time to lock in a rate is long gone
By John Garnaut
June 20 2002
Those considering locking in a fixed rate for their home loan should think twice.
The big banks have more than doubled their margins on fixed home loan rates in recent weeks, taking advantage of anxious borrowers who seek to insure themselves against rising variable rates.
Falling for today's advertised fixed rates may only ensure the banks improve their bottom line.
The perception of rising rates has allowed banks to raise rates and attract borrowers at the same time, while the banks' actual lending costs have unexpectedly fallen.
"If you're trying to take the gamble on coming out ahead with fixed rates as opposed to variable, then the best time to fix is long gone," a spokesman from Infochoice said.
Commonwealth Bank lifted its three-year rate from 6.59 to 6.89 per cent three weeks ago, and since then National Australia Bank has lifted its effective three-year fixed rate by half a per cent to 6.89.
But in the three weeks since the CBA lifted its rates by 0.3 per cent, the banks' underlying borrowing costs in providing the loans fell by around 0.3 per cent.
The fall flows from unusual activity in international financial markets. The costs of borrowing on the bond market - where banks "hedge" the loans they provide to home owners - has plunged because of uncertainty in the United States.
ANZ's mortgage analyst, David Munro, said ANZ fixes its home loan rates at a margin above the relevant bond market rate. Recently the Australian market seemed to be 0.8 per cent to 1.1 per cent above bond market rates.
Mr Munro said the size of the margin is determined by the level of competition as well as the bank's own costs.
Bank sources revealed that a true "competitive margin" for fixed rate loans was more like 0.5 per cent.
For fixed loans over one to five years, the margins between banks' rates and the underlying costs of borrowing have ballooned to about one percentage point, or double the "competitive" level.
Margins on the less common 10-year fixed rate loans have blown out to about four times the competitive level, providing the banks with a neat 1.9 per cent layer of winter fat.
The recent trend is in contrast to patterns over the last few years, which show that margins on fixed rate loans have on average been more competitive than margins on variable rate loans, though the terms of variable rate loans tend be far less restrictive than fixed rate loans.
If a reversal in the bond markets fails to squeeze the current wide margin in the next few weeks, competition probably will.
---------------------
Profit taking above and beyond the call of duty? The banks? Never!
Jas
----------------------------------
When facing a difficult task, act as though it's impossible to fail. If you're going after moby dick, take the tartar sauce
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