Mortgage rates, RBA cash rates and LIBOR

[Humphrey]

Can someone please explain to me the relationship between the RBA cash rate, LIBOR and consume mortgage rates?

How, and why, does the RBA cash rate, and/or LIBOR link through to consumer mortgage rates?

EC

 

[Aaron Sice]

i reckon if someone could explain how LIBOR is, uh.... "calculated" against these as well i'd be a happy little chappy. sorry, that's the best i can come up with pre-morning-coffee.

maybe, if someone has time, they could write a little spread....?

 

[Humphrey]

that's the best i can come up with pre-morning-coffee.

A fellow junkie!

maybe, if someone has time, they could write a little spread....?

Was this pre-morning coffee syndrome or quick wit? "write", "spread". Very good!

I found this on the LIBOR from wikipedia

LIBOR is published by the British Bankers' Association (BBA) after 11:00 am (and generally around 11:45 am) each day (London time). It is a filtered average of inter-bank deposit rates offered by designated contributor banks, for maturities ranging from overnight to one year. There are 16 such contributor banks and the reported interest is the mean of the eight middle values (the interquartile mean). The shorter rates (i.e., up to six months) are usually quite reliable and tend to precisely reflect market conditions. The actual rate at which banks will lend to one another continues to vary throughout the day.

My summation of this is take a poll of rates from 16 banks. Drop of the highest 4 and lowest 4. Then take the median of the remaining 8.

The part I'm not sure about is how this applies to the setting of mortgage rates. Are the mortgage funds coming from the RBA, or from other banks? How does the RBA rate dictate the mortgage rate the bank charges the borrower?