RAMS Fixed Rate Unwind adjustment calcs?

[Ajax]

I'm about to settle on the sale of a unit.

I itook out a 5 year fixed loan for 150k at 6.99% with RAMS (the new version) on 2 September 2009.

I will probably settle the sale of the unit on 30 July 2012. Original loan term ends on 2 Septemeber 2014.

So I will be paying out the loan a bit over 25 months ahead of the fixed period expiry.

RAMS advise that their fixed rate unwind adjustment fee will be $6,876.18.

Without going into the maths RAMS explains that the adjustment is calculated using the wholesale interest rate for the remaining fixed term and deducting this from the original wholesale interest rate at the time loan was taken out.

RAMS say the actual rates are commercially sensitive and won't divilge however they say the difference between the two rates is 2.1%. That accords with my calculations of what they are now charging me as well.

My question is how can the difference between the original wholesale rate and the rate applicable at date of settlement be so high? Anyone hazard a guess as to approximate wholesale rates (at time of loan application and the wholesale rate applicable for the remaining term at time of proposed settlement) that RAMS would be using for their calculations?

 

[Rolf Latham]

I'm about to settle on the sale of a unit.

I itook out a 5 year fixed loan for 150k at 6.99% with RAMS (the new version) on 2 September 2009.

I will probably settle the sale of the unit on 30 July 2012. Original loan term ends on 2 Septemeber 2014.

So I will be paying out the loan a bit over 25 months ahead of the fixed period expiry.

RAMS advise that their fixed rate unwind adjustment fee will be $6,876.18.

Without going into the maths RAMS explains that the adjustment is calculated using the wholesale interest rate for the remaining fixed term and deducting this from the original wholesale interest rate at the time loan was taken out.

RAMS say the actual rates are commercially sensitive and won't divilge however they say the difference between the two rates is 2.1%. That accords with my calculations of what they are now charging me as well.

My question is how can the difference between the original wholesale rate and the rate applicable at date of settlement be so high? Anyone hazard a guess as to approximate wholesale rates (at time of loan application and the wholesale rate applicable for the remaining term at time of proposed settlement) that RAMS would be using for their calculations?

coz they dont need to tell you.

have a chase around and see what the 5 year bond rate is today compared to when you took out the loan.

Add 1 % or so for the lenders margin margin and I reckon your 2 % isnt far away

ta
rolf

 

[Peter_Tersteeg]

Fixed rate payout figures are a strange beast. To determine how it's calculate, refer to your original loan offer documentation.

The problem is, they won't tell you what all the figures mean or their values.

In essence, it's the difference between the wholesale rate your funds were bought at, and the wholesale rate today, plus a margin (their costs and presumably profit), realised over the remaining fixed term.

The questions are what are the wholesale rates - they're different for every lender and every product. They won't disclose their margin either.

My general observation is that exiting a fixed rate costs about twice as much as the saving you'd make, but that's a very general observation.

 

[Ajax]

Thanks Rolf and PT_Bear.

Seems most times I deal with a lender, refinance, top-up or pay out a loan I get screwed over.

Have now decided fixing a loan is usually not the way to go. Between stamp duty payable on CBA loan top up (thanks to a former franchisee at Smartline Homeloans...Patrick you really shafted me there), lmi and paying very high variable rates with RHG I feel like I've made most conceivable mistakes.

The only saving grace is that every property I have purchased has compounded in value at about 9% p.a (going back to 1993 on one of them) and that I am not cross collateralised.

 

[Peter_Tersteeg]

Not so long ago 6.99% was considered compeditive. Don't beat yourself up over it.

I'd say the long term average variable rate is somewhere around 6.5% to 7.0% Fixing when you did wasn't an entirely bad decision if you look at it in a certain light; I've never heard anyone complain about a fixed rate of 6.99% when variable rates are 8%.

The challenge at the moment is we could be looking at varying degrees of global recession, the long term average rate could drop further, so perhaps even fixing now is a bad decision from a price perspective. Rates could also increase and your fixed rate may still save you money overall.

Generally the accepted advice on the subject of fixed rates is you should fix if you want to be certain of your repayments for a period of time. No guarantees it'll save or cost you money, just certaining for budgeting and cashflow purposes.

Personally I've been ahead on fixed rates and I've been behind. These days I look at fixing as a strategy. It has it's place but I wouldn't fix at any time if I need any flexibility in the property during the fixed period under consideration.

 

[Aaron_C]

Seems most times I deal with a lender, refinance, top-up or pay out a loan I get screwed over.

That's the thing - you can never win against a bank with fixing rates (with few exceptions) because they are experts at the yield curve! It is their business to be! At least you have good growth in your assets which, at the end of the day, is what makes you wealthy. Your loan amount stays the same/goes down so in the end your equity always goes up.

 

[boomtown]

Fixed rates are an opaque rort. Eventually the ACCC will catch up.

 

[Aaron_C]

Fixed rates are an opaque rort. Eventually the ACCC will catch up.

They should at least tell you how they calculated the figure. To simply refuse to tell you is BS imo.

 

[Peter_Tersteeg]

That's the thing - you can never win against a bank with fixing rates (with few exceptions) because they are experts at the yield curve!

To suggest that you are trying to win against the bank with fixed rates is misleading. Regardless of the rate or term, the bank locks in their profit at the start and they will always be financially ahead. Trying to win yourself is gambling. Sometimes the odds are good, sometimes their not, but it's still gambling.

 

[boomtown]

To suggest that you are trying to win against the bank with fixed rates is misleading. Regardless of the rate or term, the bank locks in their profit at the start and they will always be financially ahead. Trying to win yourself is gambling. Sometimes the odds are good, sometimes their not, but it's still gambling.

The odds are never good if the person charging you a fee refuses to disclose how the fee is calculated.

 

[Rolf Latham]

saving grace is that every property I have purchased has compounded in value at about 9% p.a (going back to 1993 on one of them) .

well that makes up for a lot

imagine if they were dogs
ta
rolf