Contemplating fixing for 3 years
- Thread starter spiduda
- Start date
hmmmm. Toughie. Media oulets sell newspapers by screaming for rate cuts and telling us all about retails woes and first home buyers woes, and everyone loves to tell their tales of woe, even though rates are over 2% cheaper than 3 years ago. The RBA says steady as she goes Australia, you have low 5ish % unemployment and the second wave of mining capital expenditure is due to start rolling through the economy in coming months. They think we're right where they want us, and they've said so repeatedly if you read what they say. Newspapers dont run those stories though ( nor the economy) Then there's the banks are also being very clear about their intentions. They have said over and over that they are facing higher funding costs as existing funding arrangements mature and roll into higher priced arrangements - and they're making it pretty clear that there will be more pricing movements upwards to cater for it. Read what the bank CEO's are saying and they aren't being ambiguous in any way. They're saying they will increase rates again at some future point. Doesnt really matter whether any of us agree or disagree with the RBA or the banks- they're the ones driving decisions, and their message seems to be pretty clear.
What does it all mean??? Well economists, psychics, gamblers or politicians cant seem to agree on this topic on any given day, so who knows? Im not going to make a prediction either. It's all guesswork at best
All we really know is that given the banks comments about funding, even if the RBA reduces the cash rate ( which "seems" less and less likely given the clear commentary they are making about rates being pretty much right where they want them) the banks have made a decision to divorce themselves from following the RBA anyway, and aren't likely to pass on most or possibly any of the reductions by the RBA. They've said so. And they've done so. People either arent listening or noticing or arent bothered, because they've said it over and over and they've also already done it several times and they havent lost any business as a result. Need proof? They did it when they held back 100 bpts of the RBA's dramatic reductions to the cash rate during 2008. They did it in November 09 and December 10 when they increased rates by 39-45bpts after the RBA increased by 25bpts, and they've done it again recently by moving completely out of step with the RBA by between 6 and 12 bpts. They have demonstrated at least 4 times in the last 4 years that they are absolutely not even going to blink about doing whatever it takes to keep driving profit growth for shareholders. And we can moan all we like- they've done it over and over when there are many cheaper lending alternatives, and people just stay with the banks in DROVES. They have more market share now than any time in the last 20 years. Anyway I digress-...
So you could reasonably look at it like this. Fixed Rates for 2 years can be had for 5.80-5.90%, and 3 year rates can be had for about the same. It would probably need an RBA reduction of 75bpts and for the banks to pass on at least 50 of it, to get most peoples variable rates to that sort of price range or cheaper. What it seems to come down to is whether you think the RBA will reduce rates by 75bpts and then keep them down there, over the next 2 or 3 years, whether the banks will pass most of it on, or whether the RBA will be happy to leave rates where they are - in which case it's likely that variable rates will nudge upwards as the banks repeat the little incremental increases in coming months.
See- toughie isnt it?
What does it all mean??? Well economists, psychics, gamblers or politicians cant seem to agree on this topic on any given day, so who knows? Im not going to make a prediction either. It's all guesswork at best
All we really know is that given the banks comments about funding, even if the RBA reduces the cash rate ( which "seems" less and less likely given the clear commentary they are making about rates being pretty much right where they want them) the banks have made a decision to divorce themselves from following the RBA anyway, and aren't likely to pass on most or possibly any of the reductions by the RBA. They've said so. And they've done so. People either arent listening or noticing or arent bothered, because they've said it over and over and they've also already done it several times and they havent lost any business as a result. Need proof? They did it when they held back 100 bpts of the RBA's dramatic reductions to the cash rate during 2008. They did it in November 09 and December 10 when they increased rates by 39-45bpts after the RBA increased by 25bpts, and they've done it again recently by moving completely out of step with the RBA by between 6 and 12 bpts. They have demonstrated at least 4 times in the last 4 years that they are absolutely not even going to blink about doing whatever it takes to keep driving profit growth for shareholders. And we can moan all we like- they've done it over and over when there are many cheaper lending alternatives, and people just stay with the banks in DROVES. They have more market share now than any time in the last 20 years. Anyway I digress-... So you could reasonably look at it like this. Fixed Rates for 2 years can be had for 5.80-5.90%, and 3 year rates can be had for about the same. It would probably need an RBA reduction of 75bpts and for the banks to pass on at least 50 of it, to get most peoples variable rates to that sort of price range or cheaper. What it seems to come down to is whether you think the RBA will reduce rates by 75bpts and then keep them down there, over the next 2 or 3 years, whether the banks will pass most of it on, or whether the RBA will be happy to leave rates where they are - in which case it's likely that variable rates will nudge upwards as the banks repeat the little incremental increases in coming months.
See- toughie isnt it?
Personally I am going to wait and see what comes of the foreign banks interest in our loan market.
More to the point............
I am blessed to have a lot of clients from various part of Asia.
As a local, a lot of them can borrow for like 1 to 2 % in local currency against local security.
They can also borrow against AUS security in local currency for a small risk margin in rate, but with a margin of max 70 % LVR adjustable on a daily basis at the request of the lender.............
My suspicion, is that MOST folks think that any foreign lender that will setup shop will lend at 3 or 4 %
Even if they could ( which I dont think they can due to hedge costs, which my offshore borrower friends do NOT have due to the underlying margin) what commercially sensible operation would go to market woth more tan say a 30 to 40 pt advantage.
I reckon at 20pts even below the current market average any newcomer would be "smashed" with the new business.
In conclusion, even with a new foreign entry, dont expect rates lower than 20 to 30 pts the average market, it makes nil commercial sense.
ta
rolf
I agree Rolf- and even funnier- you can already get that 20 or 30 bpts below the average at Ubank and loans.com.au etc, up to 80% Rolf So yeah, why all the excitement about foreign banks and LVR's of 65 or 70%?
I really wonder sometimes whether people are just so fixated by major banks and so deluded about interest rates and how they work, that they literally cant see the forest for the trees.
Right now- there are MUCH cheaper deals around than the major banks if you want variable rates. Simple as that. Take a look at loans.com.au or Ubank or
Right now - there are much cheaper deals around than the major banks if you want fixed rates. Simple as that - take a look at CUA or Citibank for 5.75%, for example.
Call your broker. Go online. Visit your local credit union. See whats available.
Please note - comments SHOULD be taken as specific remove one's head from major bank's backside and get a better deal for yourself, advice
So yeah, why all the excitement about foreign banks and LVR's of 65 or 70%? I really wonder sometimes whether people are just so fixated by major banks and so deluded about interest rates and how they work, that they literally cant see the forest for the trees.
Right now- there are MUCH cheaper deals around than the major banks if you want variable rates. Simple as that. Take a look at loans.com.au or Ubank or
Right now - there are much cheaper deals around than the major banks if you want fixed rates. Simple as that - take a look at CUA or Citibank for 5.75%, for example.
Call your broker. Go online. Visit your local credit union. See whats available.
Please note - comments SHOULD be taken as specific remove one's head from major bank's backside and get a better deal for yourself, advice
Which is great if you could ever get a loan approved within the appropriate timeframe....
Hi All,
Say I currently have 300k loan with variable interest 7% and IO offset account.
And there is a good deal for fixed rate of 5%.
1. Can I then split my loan to maybe 200k with 5% fixed rate and 100k with 7% variable ? If so, that means I save 2% on 200k loan for a fixed period of time. Assuming, the fixed rate is believed to be the lowest and no way bank will go any lower than that. Is there any other real disadvantage by splitting the loan (disregard the extra repayment) ?
2. Does it matter if the fixed loan with the same bank (with the current variable loan) or other bank ?
Many thanks as always.
Say I currently have 300k loan with variable interest 7% and IO offset account.
And there is a good deal for fixed rate of 5%.
1. Can I then split my loan to maybe 200k with 5% fixed rate and 100k with 7% variable ? If so, that means I save 2% on 200k loan for a fixed period of time. Assuming, the fixed rate is believed to be the lowest and no way bank will go any lower than that. Is there any other real disadvantage by splitting the loan (disregard the extra repayment) ?
2. Does it matter if the fixed loan with the same bank (with the current variable loan) or other bank ?
Many thanks as always.
for purchases that may be relevant- but it's not for refinances. Thats what rate locks are for.
Are we going to stick with the big boys and their higher rates just because they process a loan faster??? Has that become the hold they have over brokers? Really?
Well, im just using it as an example. However, it's not relevant to the question.
I agree Rolf- and even funnier- you can already get that 20 or 30 bpts below the average at Ubank and loans.com.au etc, up to 80% Rolf
I really wonder sometimes whether people are just so fixated by major banks and so deluded about interest rates and how they work, that they literally cant see the forest for the trees. )
If you do some really simple asking of questions in the consumer space, there are a number of reasons why non banks wont get a bigger slice for a while, and I mean even non banks that are wharehouse backed.
1. Borrowers have long memories, RHG, Macq, Seizure ( sic)
2. Even the non banks, CUs and BSs have generally sided with the "greedy" banks. Either the story spun by the banks is wrong, and the non banks are profiteers just as bad, OR everyone is hurting. This is NOT a good omen for non banks.
3. Online lenders specifically attract a special type of borrower. The online lenders backed by warehouse lenders like Ubank probably wont last. You cant cannibalise your parents business for ever...........Homepath/CBA et al.
There will be smaller guys that can make it work by cutting costs and simplify product offerings.
Its even come to the point now where some borrowers will take a PURCHASE loan with XYZ bank for 2 mths to then go and refi with UBANK or the like. An interesting market niche opened by legislation that doesnt do much for productivity. Smart business or opportunistic ? I dunno, I think the consumer will buy the concept of letting the big 4 carry the entry costs into the refi only lenders.
BTW, I havent lost many "sales" to online or non banks, but the reality is I would never know , and thank god for that
To be frank, if I cant offer a value add to the "fridge", and a client simply wants the cheapest rate then I dont want them in my portfolio to start with.
4. Push comes to shove, mainstream lenders are whining about mortgages not making money .............this isnt where the long term money is in a clients pockets anyways ?? The add ons such as cards, merchant fees, insurances, copy Rolex etc mean that a tradtional lender can further squeeze margins /ROI on mortgages. The non banks dont have that space.
Bring on more lenders, more dust, more regulation yes please.............and watch the % of 3rd party originated mortgages grow and grow.
ta
rolf
Interestingly enough though - UBank are doing over $400 Mil per month in settlements and loans.com.au are doing about the same. And I know some people at both organisation who tell me the average loan is almost 500K, while the average LVR is below 70.
Ubank are about to offer some additional features to their product- online access, redraw, etc.
I dont ever think they'll be threats to the majors. All I was saying was with all the concern and moaning about rates- people who don't even consider the alternatives cant really complain without looking a little silly. Its the same for brokers who only write bank pro packs- they cant complain either that they've have commissions reduced or volume hurdles introduced, without looking equally silly.
People like to say they want competition and choice- but if they dont use it when the banks do what we all know they will do in the coming months- reduce comms further and hike rates further.
Australia's a funny place. We love to complain about a lack of competition. We love to complain about poor service. We love to complain about jobs being shipped offshore. The most complained about and most loathed companies are oligopolies like Telstra and Woolies and the major banks. Plenty of alternatives exist in all sectors but we dont ever give them more than a passing nod. Then we all complain again when the oligopolies take their dominance and squeeze just a little bit harder- but we dont really do anything about it do we?
Anyway- just saying- forest for the trees.
Ubank are about to offer some additional features to their product- online access, redraw, etc.
I dont ever think they'll be threats to the majors. All I was saying was with all the concern and moaning about rates- people who don't even consider the alternatives cant really complain without looking a little silly. Its the same for brokers who only write bank pro packs- they cant complain either that they've have commissions reduced or volume hurdles introduced, without looking equally silly.
People like to say they want competition and choice- but if they dont use it when the banks do what we all know they will do in the coming months- reduce comms further and hike rates further.
Australia's a funny place. We love to complain about a lack of competition. We love to complain about poor service. We love to complain about jobs being shipped offshore. The most complained about and most loathed companies are oligopolies like Telstra and Woolies and the major banks. Plenty of alternatives exist in all sectors but we dont ever give them more than a passing nod. Then we all complain again when the oligopolies take their dominance and squeeze just a little bit harder- but we dont really do anything about it do we?
Anyway- just saying- forest for the trees.
Thanks Euro for your wise response.
So if I split, I will get 2 accounts: Fixed and Variable.
For example, the fixed loan will expire after 2 years. At the end of 2 years and if I'm not extending the fixed period, will it be merged into 1 variable account ?
If so, it won't interrupt my plan to convert the property into IP in the future (as I'm paying IO)
So if I split, I will get 2 accounts: Fixed and Variable.
For example, the fixed loan will expire after 2 years. At the end of 2 years and if I'm not extending the fixed period, will it be merged into 1 variable account ?
If so, it won't interrupt my plan to convert the property into IP in the future (as I'm paying IO)
Thats correct. Please note that Im not advising you should take a fixed rate loan, though. Im just making a case for you to consider it, and giving you some reasons why it might make sense for you. Buty they are my views- not necessarily yours. So you should consult a broker or your partner or the guy you sit next to at the pub, and throw the idea around a while, before making a decision.
Brave broker..........there are only a few instances where you can make that call with reasonable comfort
ta
rolf
