Interest Rates

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From: Sam Coster


As a new comer this must be the best way to
spend a Sunday, discovering all you guys who
have informative advice and not backward in
giving it.
My basic problem is that all the advice is
like Jewish advice. "On one hand, and then on
the other" but on the the third hand all
advice is useful.
My big question is, what is going to happen
to Interest Rates, is it time to lock that
variable in to a fixed rate.
Would like to get in touch with investors
here in Sydney.
Samc


Enjoy the journey, its half the fun.
 
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Sim

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Reply: 1
From: Sim' Hampel


The best advice I've had is to decide what you are trying to achieve with the property first and then use that to decide about rates.

If it's a long term buy and hold and you don't have tonnes of excess cash to spend in case rates suddenly jump up, then fix it - it's a risk management exercise.

If you want the most flexibility (ie. for selling and such) or if you can hack interest rate fluctuations (do your own servicability calculations on rates 2% or so more than the current rates) - then go variable. Reports have shown that generally you will be better off with variable if you can handle the rate fluctuations.

The answers are really quite simple once you've decided what your plans for the property are.

Try this (suggestions only !):

1. Do you intend to hold long term ?
Y - go to Q2.
N - go variable.

2. Is your cash situation tight ?
Y - fix rates.
N - go variable.

3. If you're still not sure, have you spoken to a mortgage broker who can explain how this all works to you ?
Y - go buy some more property
N - go beat your head against a wall for a while ;-)

 
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Reply: 1.1
From: Chris Legg


If you plan to buy and never sell then fixing interest rates makes more sense.

I took out a variable mortgage on my home in 1987 @ 8.7% ,within three years it was @ 17.5%.. Unless you could afford to cover this situation with other cash then you must fix or you will become a distressed seller along with many others.

In spite of the interest rate cuts recently
both here and in the US the US 30 year Bonds
and the Australian 10 year Bonds have been trending upwards since mid January.

Do something and do it now!!!
 
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Reply: 2
From: Rolf Latham


Hi Sam

Two quick points on fixed rates that most people are not aware of.

People are concerned about potential payout penalties if they need to pay the loan out early:

1. If rates are rising and the product you are getting out of then the lender will love to see you go, and there will be no interest adjustment.

If however, rates have dropped and your loan is now on a higher rate than new fixed loans of the same product, then you will be charged an equalisation fee. All this represents is a pre-payment of the differential in interest between the loan you are on and the one new applicants get.

So, the penalties are "fair" in that you cant expect the bank to give you a locked rate where you can just waltz off to a lower rate at anytime.

2. If you are just moving properties and dont need to clear the mortgage, then you can usually substitute properties without huge imposts.

Ta

Rolf

You can substitute security properties with most lenders where the loans are portable.

S
Rolf
 
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Reply: 2.1
From: Scott Marshall


Fixed Rates Just went up and are now higher than the variable...may be a lure I think considering there was an expectation of a Reserve Rate drop. Hold on variable now and switch to fixed later if you want.
Fixed : Not yet
Var : Now
 
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Reply: 3
From: Victor Mann


Hi sam,

I am a jewish broker and psychic, i predict rates will go up and then again maybe not, but u know what it could be they stay where they are, i also predict that the aussie dollar will move up and down, and that in melbourne it will certainly rain ...eventually.....sheesh
If rates are your biggest worry you cant afford to invest....because you will always complain that you got the wrong advise....but then maybe it was right mmm then again.....!!!!!!!!!

Victor (the broker )Mann
 
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Reply: 3.1
From: Rolf Latham


Victor

If we were much chop on rate predictions we would not be broking would we ? Wed be sitting on a boat in the Whitsundays :eek:)

No responsbility taken, but I will have a punt that the next longer term trend is UP.

What do you reckon Victor ?

Ta


Rolf
 
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Reply: 3.1.1
From: Victor Mann


hi rolf,

yes i would be dealing in the money market and retire in 6 months.
The best indicator i have found is the three year fixed rate as a med term indicator(stress indicator) of where the money men are going .( so far they have been going up 3times in the last 2 months)
also with an election looming the reserve bank will not do anything to swing voters either way lest it be tainted with political maneuvering) so till election day they (the variable) will stay the same.after that well its long time off.............

But then i have been known to be wrong :)
 
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Reply: 3.1.1.1
From: Gee Cee Cee


At this point of the cycle all I can see is upward pressure.

Hope I am incorrect. ??? (Any correct crystal ball gazers out there?) Mine is busted!

But I can be pessimistic & have seen what rate rises do to cashflow as well as sleep patterns.

Therefore most of my portfolio is locked in at 5 yrs +.

Happy investing

Gee Cee

P.S. Conservative old pessimistic unemployed bum.
 
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Reply: 3.1.1.1.1
From: Ray Hinton


If the big banks offer 10 year fixed rates at 7.9% that surely must indicate the upper end of the rate movement for some time to come.
Cheers
RayH
 
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Reply: 3.1.1.1.1.1
From: Robert Forward


HI guy's.

NAB up until recently had their 10 year interest rate at 7.65%, it is now set at 7.89%. So this is over the last 2 months that they have raised the rates. Just something to think about.

Robert
 
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