Fix Now or Wait ?

[exsyd]

Now i am no whizz at this but the fact that the lower 2 and 3 year rates are below current variable. This implies that the banks believe rates to drop further during this period.This is why some believe the 2 and 3 year rates not to be a good pick as there is a good chance the variable may be below these points in the short term.

Absolutely. It's a gamble.

But some people are saying: 'some fixed rates are currently HIGHER than variable so this may not be a good gamble'. And others are saying exactly the opposite: 'some fixed rates are currently LOWER than variable rates so this may not be a good gamble'. If both scenarios were certain, no-one would ever fix. Therefore I think if you want to fix, at some stage you've just got to decide when the time is right for you, and you can live with the outcome.

trajik, I believe you'll find this situation is possible for both Westpac and NAB depending on exactly what kind of mortgage you currently hold, and what kind you can switch to.

 

[JIT]

If a number of other homeowners & investors fix in with 3 and 5 year rates in a panic, would this not artificialy increase these rates (i.e Bankwest)?

Not sure, but I think most people (homeowners and investors) are still cruising and snoozing on variable rates and will possibly miss the very narrow fixed boat all together.

 

[sparky23]

exsyd,

Interested to see which bank has fixed rates below variable at present. I've had a quick look at a couple of banks websites and all fixed rates are above the variable?

My lo-doc ING will be at 5.94% after the discount kicks in but the fixed for 3 years at the moment is 5.69%.

 

[Y33]

St.G had on the 3rd of April.

Variable 5.89% and 5.19% negotiated.

Fixed 3 Yr 5.34% & 5 Yr 5.94%.

Sort of makes fixing look quite nice but another drop would be even better.

 

[exsyd]

Damn. The 3-yr rate I was looking at fixing just went up 20 basis points in one jump from my enquiry two weeks ago to the updated rates this morning. I suspected this was going to happen, although I was hoping they'd hold off long enough for me to get my rate. So for me that tilts the balance in favour of remaning variable for now

 

[simo74]

nab increases fixed rates

NAB's 2 & 3 year fixed rates both increased by 0.20% this morning.

 

[ffc1883_1996]

Love your work keithj.

One thing I would add...

One oft quoted reason not to fix rates is the potentially excessive break costs. It's important to remember that break costs are high when fixed rates have fallen. They are usually trivial when fixed rates are higher than when you your fixed rate.

This has not been my experience. I think it depends on the lender. Macq Bank were still quoting exorbitant fixed rate break fees to me twelve months ago when, at the time, variable and fixed rates were much higher than my rate.

 

[Highlygeared]

If (big if) rates ever got back to 17%+, I'd be in a v. strong position & if rates fell below my fixed rate for periods of that 15yrs, I wouldn't be unhappy - there's more upside than downside IMO.

Keith

in your opinion, would it be prudent to assume if rates rose significantly higher that rents would respond in kind (ceteris paribus)?

 

[JIT]

Yes. I hope it will be a small move initially ( < 0.2%).... and I hope it won't be my bank that raises first.

NAB's 2 & 3 year fixed rates both increased by 0.20% this morning.

There you go keithj, your wish has been granted!

NAB must be reading our threads!

What to do now?!

 

[Aaron Sice]

my lo-doc MAV CBA package is a 4.94% - variable.

i can't see the value is paying more for a fixed interest loan when i'll be paying out about 1.5%pa extra which is probably all it will move in the next 3 years anyway....

 

[JIT]

my lo-doc MAV CBA package is a 4.94% - variable.

i can't see the value is paying more for a fixed interest loan when i'll be paying out about 1.5%pa extra which is probably all it will move in the next 3 years anyway....

Sure, but 5 years at 6.29% pa isn't too bad a premium for some insurance...for some of your borrowings at least.

 

[sparky23]

I know that with ST George I have a .7% discount with the negotiated rate but does anyone know if any discounts apply to their fixed rates?

 

[BV]

I know that with ST George I have a .7% discount with the negotiated rate but does anyone know if any discounts apply to their fixed rates?

I think it's 0.2%

 

[Aaron Sice]

Sure, but 5 years at 6.29% pa isn't too bad a premium for some insurance...for some of your borrowings at least.

so the fees + sd + 125bp rise in interest repayment over 5 years or so is worth the "gamble" that rates "may" go higher than that - it would need to move very high very quickly to pay that gamble off.

sorry - but i'll wait.

 

[WinstonWolfe]

so the fees + sd + 125bp rise in interest repayment over 5 years or so is worth the "gamble" that rates "may" go higher than that - it would need to move very high very quickly to pay that gamble off.

sorry - but i'll wait.

yes, one doesn't want to get too stuck on the above data.

take the cash rate yield curve forecast for instance.
6 weeks separates the graphs.
15% separates their forecast.

very rubbery figures.....

rising net foreign debt by public and private avenues, bond issuance by fed and state govt (i.e. aussie infrastructure bonds for the nbn or Rudd's dive into quant easing in the face of growing unemployment), weakening of US finance sector - these things would introduce enormous variance into the curve forecast.


as for the risk premium charged by foreign lenders, westpac thinks there's more reason for it to go up.

 

[Propertunity]

Thanks for the Westpac Market Insights link WW.

Interesting to see this comment in there:

The housing recovery arguably is already on track and the last two recessions confirm that the housing recovery will not be derailed by rising unemployment.

 

[WinstonWolfe]

Interesting to see this comment in there:

yes, Bill Evans must have a broad definition of "arguably".

 

[danwatto]

Has anyone seen any other fixed increases besides NAB & Bankwest? I might get my stuff ready to fix/switch now for 5 years.

 

[keithj]

There you go keithj, your wish has been granted!

NAB must be reading our threads!

What to do now?!

OK..... that's enough for me to start fixing.

Another point I touched on in the original post... there is v. little competition left, so the big 4 are free to increase their margins on standard variable rates over & above the RBA cash rate increases. Volume growth looks like slowing, so their other main option to increase profits is to increase margins.

 

[Qinau]

Is there a general rule of thumb for how much to fix? ie fix 75% and leave 25% variable with an offset? Would the majority do this or just fix the lot?

Also this is probably a really silly question, but what happens if the offset account balance is greater than the loan? Effectively no interest? Have I answered my own question?

Cheers