Interest rates

TIC-302 · 07-05-2008, 10:37 AM

what are your thoughts on the Aust economy?

Yesturday the RB decided to hold interest rates however , market leaders are predicting another 0.25-0.50% rise by the RB with in the next 12 months.

Some individual interest rate rises have happened by the banks themselves, however this is i=only a small amount 0.1-0.15%.

Should people lock their rates in, for 1,3 or 5 years.

What are your thoughts?

GreenMachine · 07-05-2008, 10:40 AM

There's respected opinion out there that rates will drop once the rises have done their job (slowing the economy). Some economists are predicting single-digits by early next year.

It's hard to know. My home loan is variable with Westpac, and we're wearing it at the moment...

SB076 · 07-05-2008, 12:38 PM

Quote:

Originally Posted by GreenMachine

There's respected opinion out there that rates will drop once the rises have done their job (slowing the economy). Some economists are predicting single-digits by early next year.

It's hard to know. My home loan is variable with Westpac, and we're wearing it at the moment...

I agree I think rates will start dropping in future - there are limits to what people can pay and I think we are very close to hitting that limit.

Fuel, food and utilities have all gone up - confidence in manufacturring and building (homes) is down, retail spending is slowing and property prices are starting to ease - there may be some more short term pain (rate increases) but ultimately it will drop again. In the US rates are around 2 - 3% or something and people are walking from there homes (bank's foreclosing on there loans)

I have a variable rate at the moment (wish I locked it in 2 - 3 yeats ago) At the moment I think you are better off with a variable rate, a couple of years ago I think you were better off with a fixed rate

Buddy 1 · 07-05-2008, 10:44 AM

We are Locked in for 2 Years at 8.45 %

I think the Economy will not slow as Much as Needed & Rates will go up once or twice in the next year before we see them start to fall.

TIC-302 · 07-05-2008, 10:47 AM

my option is 8.75% for 2 yrs, with a 100% offset account linked to my home loan plus i can make extra repayments( at any amount as many times as i can)

Greeny, what did you mean by single digits?

GreenMachine · 07-05-2008, 11:35 AM

Quote:

Originally Posted by TIC-302

Greeny, what did you mean by single digits?

Sorry, brain fade... I can't find the article I was reading any more, but I think it mentioned ~5%

Incidentally, your setup with the 100% offset and additional repayments is also what we have, and you'd be mad not to.

Rodp · 07-05-2008, 12:03 PM

I believe one of the penalties with my home loan when it comes to locking interest rates is that it stops you from re-drawing. That's a big no-no for me. I'll ride out a few more hikes. I factored in a 6% increase when I took the loan before I would start to cut back on luxuries.

TIC-302 · 07-05-2008, 12:18 PM

Quote:

Originally Posted by Rodp

I believe one of the penalties with my home loan when it comes to locking interest rates is that it stops you from re-drawing. That's a big no-no for me. I'll ride out a few more hikes. I factored in a 6% increase when I took the loan before I would start to cut back on luxuries.

CUA offers all the options i noted , plus free re-draws as many as possible as long as its more then $1000 at a time.

arm79 · 07-05-2008, 03:27 PM

Quote:

Originally Posted by Rodp

I believe one of the penalties with my home loan when it comes to locking interest rates is that it stops you from re-drawing. That's a big no-no for me. I'll ride out a few more hikes. I factored in a 6% increase when I took the loan before I would start to cut back on luxuries.

Smart move.

Hopefully the rates go up a little more. Investment housing will be quite cheap then.

Those who are smart with a few $$$ and big balls right now are cashing in on the best investments they will make buying homes from people who have defaulted or in difficulty.

I've just bought my second home as an investment. I'll wear the 2 or 3 more interest hikes over the next year. Maybe even buy another home later this year (basically cash in on someones misery) and in 2 or so years I'll be laughing.

All of it fixed for 1 or 2 years to keep me afloat.

Buddy 1 · 07-05-2008, 04:27 PM

Quote:

Originally Posted by arm79

Smart move.

Hopefully the rates go up a little more. Investment housing will be quite cheap then.

Those who are smart with a few $$$ and big balls right now are cashing in on the best investments they will make buying homes from people who have defaulted or in difficulty.

So do you have Big Balls or a few $$$$$

:

Yeah buy in Gloom- Sell in Boom.

arm79 · 07-05-2008, 04:33 PM

Quote:

Originally Posted by Buddy 1

So do you have Big Balls or a few $$$$$

:

Yeah buy in Gloom- Sell in Boom.

The balls.. Definitely not the $$$... But my existing house and bank helped with that.

One of those offers that was too good to refuse.

gz1 · 07-05-2008, 04:34 PM

The only thing these rate rises really show is the incompetence of the RBA. Had they not been asleep at the wheel and raised the rates earlier, there would not be any need to go to these heights now. Also the many frequent rate increases so close to each other, before the previous one had time to take affect really, shows that it is nothing more than panic reaction from the RBA board at having been asleep.

gtfpv · 07-05-2008, 12:03 PM

my thoughts are . a FALSE ECONOMY. which has been created. and it is spiralling out of control. petrol and oil has gone up . groceries and essential bills have gone up at over 10% pa. wages have not gone up . what has happened is people have increased hours of work to increase thier income to pay for these cost increases. therefore have equalled the increases in costs . therefore allowing for more inflation. the end result is people working 2nd jobs, or doing extra hours to pay for what they once payed for without extra hours . SMART MOVE BY BIG BUSINESSES AND THE ELITE , OF THIS COUNTRY.
probably at the pointnow , where it will soon downturn , because they have absorbed all these increases in the cost of living to the point where non essential items are not being bought .
where does this leave the average person , other than working 50 hours a week .
they wanted more hours out of us . they got it.

JG66ME · 07-05-2008, 02:32 PM

Just think about this! I just got back from the UK. There official rates (Bank of England)are droping but mortgage rates are going up, thats IF you can get a loan. Some banks have stopped lending. The money has just run out.

Wouldnt be suprised that if or when the Reserve Bank drops rates the lending rates stay high.

Steve

Buddy 1 · 07-05-2008, 02:38 PM

I remember Rates up around 18% way back when... so never assume we have Hit the top of the Rates

blueoval · 07-05-2008, 02:46 PM

We are locked in for 5 years at 7.95% since September last year. My mrs used to work at the Commonwealth and she knew the lender so we had many fees waved.

My mate who used to work for Westpac was involved in the refinance department or whatever its called, and he told me that when people did business, the first question they ask is 'can we get the interest fixed please?'

It seems like the only way for temporary relief these days.

Certainly look into it and then shop around for the best deal.

Sam_Boss260 · 07-05-2008, 03:30 PM

We looked at fixed last year, and the way that it was explained to me by the bank manager was "if you think you MAY refinance, sell, extend the house and want more dosh etc, before the end of the fixed term, then you will be stung badly when you break the term". That was enough for me to stick to variable. We are just wearing the cost and riding it out....

blueoval · 07-05-2008, 03:34 PM

I know with my place, its now an investment. Its being rented out, and I dont plan to sell it anytime soon unless something drastic happens.

fnm17 · 07-05-2008, 04:35 PM

I nearlly bought another property last year, luckily i didn't as it is costing me enough to service my existing mortgages !!Yeah I am in the same boat as a few more increases this year, then a drop early next year hopefully !!!!!!!!!!!

TIC-302 · 07-05-2008, 05:41 PM

I just finished my locked 3yr contract which was at 6.59% !!!

and i re-locked it again for 2 more yrs at 8.75%.

the difference this made to my fortnightly repayment...$200 !

:

rodderz · 09-05-2008, 11:33 PM

Quote:

Originally Posted by TIC-302

I just finished my locked 3yr contract which was at 6.59% !!!

and i re-locked it again for 2 more yrs at 8.75%.

the difference this made to my fortnightly repayment...$200 !

:

I will get the same later this year, ours is currently locked at 6.44%

It is further discounted however from having house insurance + mortgage with the Commonwealth

Pinch · 09-05-2008, 08:36 AM

I think there may be a huge problem when peoples fixed rates come start expiring in over the next few years. It was around about 3 years ago when a lot of people thought that rates are only going to go up in the near future so better fix it. I was one of them. In August next year my rate will go from 6.6% to 9.5% - OVERNIGHT.

All right, so I knew this, I am paying at a 10% equivalent (or just under) now so when it happens I will not be out of pocket, but just won't be paying much extra any more (25% of my loan is still variable to allow these extra payments). A lot of people are not doing this though. A lot of people bought big, then fixed to give some guarantee, but could only do so for 3-5 yrs before they fell back to the standard rate. How will these people cope with an overnight 3% hike? A McMansion in the outer suburbs is going to be hell to pay off at 9.5% (or higher) with $2.30 p/l petrol prices in the near future for the medium-long distance commute to work.

I honestly don't know what the answer is, but to those on fixed rates that are soon to expire, might be an idea to get in the habit of paying the higher rate now. If the whole loan is fixed and can't pay extra, calculate the difference and put in an ING online saver account or something. Not only will you be in the habit of paying so it doesn't go to crap overnight, you will have a small buffer to pay any mortgage payments that you just cannot pay.

If it is just not going to work, then the only option is to sell now well before the increase takes effect, otherwise the other option (foreclosure) is a hell of a lot worse.

I don't really like my chances of getting too much of a better deal when I come off my fixed either. My place is worth 'almost as much as when I bought it' (channeling Mr Kerrigan there) - a product of buying at the height of the boom in early 2004. Coupled with a credit squeeze etc my negotiatiating position is crap all, despite my steady professional job and decent income.

Mortgage - a derivative of the word 'to the death'. So true.

Good luck all.

cycle myth · 09-05-2008, 11:24 PM

The banks will increase rates again in the near future to recover the cost of their funds.

The reserve bank will need to drop rates to keep the economy from stalling and to stop people who shouldn't have got a home loan from defaulting.

This will happen within a few months of each other for rates to remain at current levels until the RBA is compelled to reduce again.

TURBOTAXI · 10-05-2008, 07:51 AM

we just need to lower employment a little and stop people spending. Our personal credit binge is a problem that many people will have to deal with over the next decade.

GT0132 · 10-05-2008, 08:37 AM

So long as the Feds in the US keep lowering their rates, and therefore pushing up the AUD, you can expect rates to continue upward, unless of course business confidence starts to decline (signs it is are starting to show) and/or consumer spending falls (which it aint).

Inflation hasn't been capped out yet...Fuel prices are only just now starting to have a flow on effect to transport costs therefore increasing the price of goods generally. If that leads to an all out price/wage spiral then expect double digit inflation like in the 70's....Wholesale interest rates tend to be around 2.5 % above the inflation rate...so if inflation is at 8% the wholesale interest rate will be around 12 and the end consumer slapped with 13-14

thexyking · 10-05-2008, 10:41 AM

I'm in the industry and I make the following observations:

Fixed rates are like insurance, if rates go up you get something for the money you paid, if rates stay where they are or fall, you miss out. If you don't believe you can handle an increase in repayments, you can take a fixed rate for up to 15 years (not that I like fixing that long) to 'insure' against an increase.

If you want to maintain access to redraw or run an offset account, you can fix some and have a variable portion too so that the benefits of redraw and offset are available. There are a couple of lenders who will allow partial offset on fixed rates.

When you take a mortgage, the bank will calculate your capacity to repay at a higher interest rate (0.75% to 1.5% higher than the actual rate you pay). You should use this benchmark to work out how much you pay. You should never pay just the minimum.

Here are a couple of simple ideas:

Pay extra into your mortgage

Take your calendar monthly payment and divide by 4, pay this amount weekly or double the amount fortnightly. You actually pay an additional 1 month's payment each year and this equates to covering a 1% increase in interest rates.

Don't pay by direct debit, ask you employer to pay money directly to your mortgage account each time you are paid. Most employers can diorect funds to different accounts. If you work overtime and have a variable income, you pay the estra to the mortgage by saying to your boss, "put $250 a week into my normal day-to-day bank account and pay the rest to my mortgage". Using direct credit rather than direct debit removes the capacity for the bank to charge dishonour or account overdrawing fees.

Have a budget and stick to it, the mortgage has to be paid each and every week and never goes on holiday. Pay extra always.

When calculating how much you will pay to your mortgage, put yourself under a bit of pressure so that you don't have surplus money sloshing around that you only end up wasting anyway. By paying additional money to your mortgage (where you have redraw) it is just like saving into a bank account anyway.

If your loan is joint with your partner, make the redraw operative with both signatures required. This means you have to go into the bank to redraw rather than doing it by phone or internet. It makes accessing the redraw a little more difficult so you have to think through (and get your partner's agreement to) the need for the redraw in the first place.

It doesn't matter if you only pay a little extra, it all helps.

Don't but things on interest free (the end interest rates are fearsomely expensive, most in excess of 25%pa), don't have a credit card it you pay interest on it. Get in the habit of spending money you have already, not money you will earn next week or next month. If you still think you need a credit card, just get a small limit of, say $1,000. If you pay interest on your credit card, you shouldn't have one. If you do have a credit card (or 2 or 3) and you are paying interest, contact you bank and consolidate into your mortgage or a personal loan.

Have a budget, pay extra, don't pay interest on credit cards.

If you are dealing with a mortgage broker, don't just assume that they will do the best thing for you. If you are, say, an ANZ customer, a broker may try and convince you to move elsewhere (they generally get paid on the $amount they introduce to the bank so if they increase your existing ANZ by $20k, they get paid on $20k. If they take the ANZ to Westpac and the total new loan is $200k, they get paid on $200k but you may be no better off). If the broker talks about every lender except the one you are with, get suspicious and ask 'what can my existing bank offer?' There is rarely a significant difference between the products one bank can offer over another.

Gee it is easy giving advice to others, isn't it?

Good luck

Pinch · 10-05-2008, 12:14 PM

Thanks thexyking, great advice.

I differ slightly on the no interest free aspect though. I have a GE interest free card, and needed some household stuff (white good stuff, not plasmas - my older CRT is sweet anyway). Worked out how much it was per week to pay off in 75% of the interest free period and set up a 'set and forget' payment from internet banking for each week until paid off. No dramas, still had 25% of the time left too in case there was some reason I needed to break the repayments - never did though. Used it a few times and GE has probably made about $60 off me over the years, purely from that cup of coffee cost monthly charge.

Its all about discipline, like what you were saying in the mortgage tips. Instead of buying crap second hand appliances for cash and having to keep getting them fixed, or new ones, all the stuff I bought long ago is still as new. Probably saved me a bit in the long run, but you have to be VERY disciplined. Its great for stuff you need, but dangerous for stuff you want. Its not all good for the Pinch though. My (low rate) credit card is a bit of a vice. I have bought stuff I didn't REALLY need on that and still have a balance (but the rate is less than a personal loan).

I have a Amex for everyday purchases that is paid off in full each month. I use it for everything where it is accepted. Card cost is $395 a year, and on average I get about a genuine $1400 in value back in extras that I would have had to pay for otherswise, but I do travel a bit and use the rewards and points there.

347 mont · 10-05-2008, 12:40 PM

What winds me up is yesturday the NAB announced record profits, over $2 BILLION, thats profit not revenue, and then banks increase their rates independent of the Reserve Banks set rate and say they have to reclaim their cost because of the extra cost of lending money.GRRRRRR, I'm managaing ok, but it has put the brakes on my dream mods for my car, boy if I was mortgage free I'd be driving an absolute killer, lol.

Bearman · 10-05-2008, 01:40 PM

Quote:

Originally Posted by 347 mont

What winds me up is yesturday the NAB announced record profits, over $2 BILLION, thats profit not revenue, and then banks increase their rates independent of the Reserve Banks set rate and say they have to reclaim their cost because of the extra cost of lending money.GRRRRRR, I'm managaing ok, but it has put the brakes on my dream mods for my car, boy if I was mortgage free I'd be driving an absolute killer, lol.

Yep, that one really gets to me!! The extra interest rate rises the banks have imposed on us due to "higher borrowing costs". What a load of shyte!! That's just a major scam to fatten up their profits. I bet my left one that when the RBA cuts official rates that's all the banks will pass on, we will NEVER get those extra rate rises back!!

How have they gotten away with it??

The non bank lenders started this ball rolling (Thanks RAMS!!) and the major banks held off. As a result lots of people moved their mortgages to the major banks. The banks then signed them up with HUGE exit fees then started passing on the extra interest rate rises so now thousands who swapped have been screwed over good and proper and are now trapped by the huge exit fees. Very classy!!

It's a scandal and needs the authorities to investigate!!

:

cycle myth · 10-05-2008, 08:52 PM

The "extra interest rates" by the banks aren't shyte - they are real and there will be more because they have been absorbing some of the increase in costs.

Bank profits / healthy financial institutions are a good thing - you wouldn't want the implications of the opposite.

Lets hope that there is no investigation into fees as the government will demonstrate their wisdom with a complicated legislation that will increase costs by the banks that we will have to wear.

Watch out for non-bank lenders fees of 1% of your mortgage amount are far greater than the stuff all $700 most of the big 4 charge.

Thats why there has been a strong swing back to the majors.