Fix Now or Wait ?

[Zeddy]

I don't have an offset account, unfortunately. I want to make sure I can make the repayments comfortably while travelling. If it breaks even with variable rates, I'm happy. If it's a bit more expensive (which is possible), I don't mind.

I'm thinking of it as insurance for my my peace of mind, and in case things do go pear shaped.

 

[Qinau]

These rate threads have been blowing my mind, do I fix or wait...

After much deliberating I decided to fix 60% this morning, so to Rolf for the heads up on CBA rises tomorrow and everyone else who has contributed you get a big one of these

Cheers

 

[Ross]

Big ta to Rolf from me too

 

[danwatto]

I too a so torn between fixing or staying variable. I have always been a variable sort of guy.. But i'm really considering fixing for a few years.

I am with ING and as you have seen, they are hiking their rates. HSBC have some good rates:

4.99% p.a (1 year)
5.20% p.a (2 years)
5.29% p.a (3 years)
5.80% p.a (4 years)
6.00% p.a (5 years)

Anybody use HSBC?

Ash

Yes, I saw an add for 1.85% discounted intro variable!! Split this with a 5 year fixed and that is my backup option if St George doesn't work out.

I think they have package discounts on fixed as well.

 

[WinstonWolfe]

Here's a simple calculator that finds a 5 year variable rate breakeven point when compared to fixed.

It compares the cost in flat dollar terms and in discounted cash flow terms using NPV.

The latter calculation requires the use of excel solver function.

 

[Edmond Dantes]

I've just fixed 40% of my loan. The best of both worlds..

let the force be with meeeeee

 

[plusnq]

Here's a simple calculator that finds a 5 year variable rate breakeven point when compared to fixed.

It compares the cost in flat dollar terms and in discounted cash flow terms using NPV.

The latter calculation requires the use of excel solver function.

Thanks WW. Very helpful. Kudos your way.

Cheers

Shane

 

[WinstonWolfe]

Thx Shane.

I just put a third worksheet in which allows you to do a whatif on the variable rate over the 5 years....in other words, change the variable each year by whatever you want.

There's always the chance variable rates will drop below what they are now, and stay low (japan)....or conversely, go to the moon if a strong recovery causes strong inflation (the recession we had to have).

Either way, the whatif worksheet will help you appraise the consequences.

Keep in mind NPV discount rate is a controversial figure. Some people use nominal inflation, some the risk free rate, others whatever you can get an a reasonable return on over the same period......

I've also edited to allow a mixed option of fixed and variable...

 

[WASP]

we're also confused

Loans with RAMS and Westpac

Fix now or wait, has the window closed?

Currently plowing more into Line of Credit to reduce it

 

[twhurl]

Yes, I saw an add for 1.85% discounted intro variable!! Split this with a 5 year fixed and that is my backup option if St George doesn't work out.

I think they have package discounts on fixed as well.

Hi, I just noticed in the fine print that once they yearly discount rate finishes and you revert to one of the packages you do not qualify for the .50 or .60 discount to this rate. This makes this less competitive doesnt it as I think St G ad others apply the discount once you drop off the initial rate.
Anybody familiar with this ?

 

[WinstonWolfe]

a comparison of three scenarios.

a big decision on whether to fix or not as it could entail a 100k difference in interest on total loans of 1m.

 

[ffc1883_1996]

Over to you, Governor.

Michael Pascoe shares his thoughts on the matter in this article.

A month ago, the credit market was in harmony with the forecasters' chorus that the RBA cash rate was on its way to 2% this year and wouldn't be rising much next year, maybe crawling back to 2.5% midyear.

Now the money is betting on rates bottoming around 2.5% and then starting to rise from year's end. It's a very brave call, Minister.

The effect has been to increase the three-year swap rate from about 3.5% to 4% - and that has the banks looking to pass on the higher cost of funding.

''While it's possible the RBA could start to hike from early next year, that scenario to me seems highly unlikely - a joke actually,'' writes Robertson.

 

[WinstonWolfe]

I don't always agree with Pascoe, but do on this.

hard to see the economy overheating (with or without inflation) until credit fueled consumption gets back to early 08 levels.....which I don't see for a looonnggg time....

so my money is on the deflationary to middle of the road scenario.....despite recent interpretations of bond yields....which are after all, a dependent of RBA actions.

Robertson is right though.....the RBA cannot justify their lack of transparency.......unnecessary government meddling in free markets yet again....

 

[Andrew_A]

Michael Pascoe shares his thoughts on the matter in this article.

I agree with this article.

Had the hard choice on Monday to fix with CBA before the rate hike in the fixed rates and decided that the 1.25% differential between fixed and SVR rates was enough not to fix.

So... 100% variable for me. For someone with a large portfolio I can see the wisdom in fixing now but not for this little macro punter. I'm a deflationista for the moment.

 

[Andrew_A]

From the Pascoe article...

The increases we've just seen in bank fixed-term rates reflect both higher three-year money costs overseas as existing lines expire and an increase in the domestic yield curve as the credit market has taken an amazingly hawkish view of RBA thinking.

Anyone know where the OS 3 year funds are coming from and a good way to track that funding source? I imagine this is largely independant of the Aussie 3 and 10yr?

I have read in a few places that Aussie banks get a large % of their funding from O/S so likely it's important to track those markets.

A learning macro newbie here.. Just like a giant game of gloabl chess.

 

[WinstonWolfe]

From the Pascoe article...

The increases we've just seen in bank fixed-term rates reflect both higher three-year money costs overseas as existing lines expire and an increase in the domestic yield curve as the credit market has taken an amazingly hawkish view of RBA thinking.

Anyone know where the OS 3 year funds are coming from and a good way to track that funding source? I imagine this is largely independant of the Aussie 3 and 10yr?

let me know when you find out the sources. I've been trying to find an answer for 5 years. The APRA website has some interesting stuff.

meanwhile, imho, foreign sources of fixed loan funding are sensitive to aussie govt bond yields, as foreigners presumably want to get paid back in their own currency.

 

[WinstonWolfe]

this gives a bit of a breakdown of bank funding......but no specifics like country of origin, swf's, pension funds, etc.

 

[chilliaa]

Guys maybe i am looking at this from a different angle. There are a number of posts now about long term fixed rates going up.

Before the credit crisis, banks would securitise their lending books, so basically once the underlying loan was securitised, it wasnt the banks problem anymore.

Now the banks are retaining alot more of the loans they write under their own balancesheet.

So what is this telling me?
That the banks fear interest rates will go up substantially over the next 5-10 years. So if you want to fix for these periods of time you have to 'insure' the bank against this risk. (because if the loan is not securitised, the bank will wear the future funding cost).

Whats the impact to property holders:
In my opinion, its all very well looking at the current variable rates and having a nice warm fuzzy feeling (as we used to say when auditing accounts), but i would be calculating a variable interest rate of around 6.5-7% when determining the VIABILITY of my portfolio and with reference to buying more property. I definately wouldnt be making decisions based on anything near current variable rates.

But thats just me. If i can justify a purchase decision, or maintain my current portfolio on a variable interest rate of 6.5-7%, and variable interest rates dont hit these numbers then its just iceing on the cake.

 

[vbplease]

fixed rates to drop

Good things come to those that wait

http://www.news.com.au/business/money/story/0,28323,25391555-5016110,00.html

 

[WinstonWolfe]

Very interesting vb....I wonder about net foreign liabilities leading to our loss of AAA though, and effecting fixed...

Still can't see variable going up significantly in the next 3 years.

Chilli, can you expand on what risk the banks carry with a fixed loan on the books?. The deal is locked in for the fixed term. The only way I see the bank's risk would increase is if there is a mortgage default, but that would be covered by the bank's mortgage insurance.