Fixed Rates lower than the Variable Rate?

[Ebbie]

Hi, I haven't been following the trend in fixed interest rates lately but noticed the current Bank of Queensland rates are as follows:

Fixed
1yr = 7.04%
2yr = 7.19%
3yr = 7.34%
4yr = 7.74%
5yr = 7.84%

Variable
7.86%

I thought it was fairly certain we will be in for higher interest rates due to higher inflation over the coming years so wouldn't it make more sense to see the fixed rates currently higher than the variable rate? It's almost as if the Bank of Qld (and I haven't checked the other banks yet) are expecting variable rates below 7% over the next 5 years.

Thoughts anyone?

 

[alexlee]

No one pays the headline variable rate. The actual variable rate people pay would be around 7.0%, 7.1%.

However, a yield curve that flat means the market isn't expecting many more rate rises, if any. Which isn't necessarily correct: it just means that's what people who are providing fixed term funds to the banks at the moment think.

 

[Ebbie]

No one pays the headline variable rate. The actual variable rate people pay would be around 7.0%, 7.1%.

Hi alexlee, apparently they drop it .4% under a package so it might be more like 7.46% that people are paying which is still higher than the fixed 1-3 year rates.

However, a yield curve that flat means the market isn't expecting many more rate rises, if any. Which isn't necessarily correct: it just means that's what people who are providing fixed term funds to the banks at the moment think.

Hmmmm...in that case you would think the people providing fixed term funds (being experts in their field) would have more of an idea and a better chance of being correct. It would be interesting to see how often they've got it wrong in the past.

 

[peaches]

The fixed rate market is priced on a totally different basis to the cash rate and as we have seen recently fixed rates were falling while variable rates increased. There are many factors influencing fixed rates - a few years ago there was a lot of Chinese money looking for a secure yield and at that time fixed rates were well below variable rates - but that is uncommon.

It is a very uncertain period here and around the world. Don't fix in order to beat variable rates, most people who take that bet lose. Fix when you feel comfortable and want to sleep at night knowing you are safe for the next X number of years. If variable rates go down - you lose but you can still sleep in the knowledge that you have an affordable loan.

Always remember if variable rates fall and you have a high fixed rate - the exit fees can be in the tens of thousands of dollars.

 

[Ebbie]

Don't fix in order to beat variable rates, most people who take that bet lose. Fix when you feel comfortable and want to sleep at night knowing you are safe for the next X number of years.

Exactly the way I see it peaches, and if variable rates do go down after I'd fixed I wouldn't be stressing over it. I like the certainty of fixed rates. However, if I was into betting fixed to beat variable I have a feeling my chances of winning at this point in time wouldn't be too bad. But you never really know for sure!?

 

[Rolf Latham]

if variable rates do go down after I'd fixed I wouldn't be stressing over it.

there was aboout x hundred thousand that didnt say that when the spread on variable to fixed was sudddenly 3 plus

ta
rolf

 

[alexlee]

Hi alexlee, apparently they drop it .4% under a package so it might be more like 7.46% that people are paying which is still higher than the fixed 1-3 year rates.

I don't know about you but I'm paying around 7-7.1% on the variables.

 

[redwing]

The fixed rate market is priced on a totally different basis to the cash rate and as we have seen recently fixed rates were falling while variable rates increased. There are many factors influencing fixed rates - a few years ago there was a lot of Chinese money looking for a secure yield and at that time fixed rates were well below variable rates - but that is uncommon.

It is a very uncertain period here and around the world. Don't fix in order to beat variable rates, most people who take that bet lose. Fix when you feel comfortable and want to sleep at night knowing you are safe for the next X number of years. If variable rates go down - you lose but you can still sleep in the knowledge that you have an affordable loan.

Always remember if variable rates fall and you have a high fixed rate - the exit fees can be in the tens of thousands of dollars.

I'm thinking those that got 4.99% for three years are smiling

How about the recent 6.89 - 6.99% rates, more of a gamble but looking good with RBA comments of the state of the nation, particularly the mining states?

 

[peaches]

If you look over the last 20 years - people who fix come off losing - but many of them probably sleep better. It should not be a gamble it should be a business/money management decision - just like hedging currency or selling on the futures market.

 

[Brett IP]

I'm thinking those that got 4.99% for three years are smiling

Im Smiling

I think that a fixed rate around 7.09% for 3 years is OK and about the highest I would consider due to the varying things that can happen in that time.

Fixing 50/50 or in a ratio of your choice would be a more safe bet though. I dont know what will happen in the future, but it doesnt seem like it will be going down anytime too soon (within 6 months to a year). Could be totally wrong though, no one knows. Its all risk management strategies.

 

[wobbycarly]

*snip*
(and I haven't checked the other banks yet) are expecting variable rates below 7% over the next 5 years.

Thoughts anyone?

ANZ Standard Variable Rate
Variable Rate 7.80% p.a.
ANZ Fixed Rate
1 year 6.99% p.a.
2 years 7.24% p.a.
3 years 7.10% p.a.
4 years 7.69% p.a.
5 years 7.74% p.a.
7 years 8.19% p.a.
10 years 8.14% p.a.

 

[Ebbie]

Interesting

Bank of Qld reduced their fixed rates today.

 

[peaches]

Bank of Qld reduced their fixed rates today.

To what ???

 

[Ebbie]

To what ???

5yr was 7.84%, now 7.6%
4yr was 7.74%, now 7.55%...

No change for 1yr fixed.

 

[peaches]

I haven't had anything to do with BoQ since they dumped dealing with brokers - looks like I haven't missed anything - there are lots better offers out there.

 

[Ebbie]

Yeah, one of my loans is still with them but I initially went through a broker. I haven't switched lenders yet so I have to deal with them directly now.

Why did they dump brokers anyway?