Is it really a good time to lock in Home Loan?

[chatty]

fixed rate home loanhas been increasing. I am wondering whether it will continue to increase.

It appears that the unemployment rate is going to keep rising and RBA may have few more rate cut but I am wondering whether the big bank will follow the RBA.

In sum, do you think the interest rate will go up or down? I am thinking about lock in my home loan for four years but not really sure whether it is the right decision.

 

[robots]

hello,

the issue with fixed loans as we move into the future (ie. next 5,10,15,20 yrs) is the break fee if you have to suddenly exit the loan

this could be through separation, job relocation, death, downsize, unemployment and all of a sudden the benefit of "fixed" home loan is smashed

thankyou
professor robots

 

[chatty]

hello,

the issue with fixed loans as we move into the future (ie. next 5,10,15,20 yrs) is the break fee if you have to suddenly exit the loan

this could be through separation, job relocation, death, downsize, unemployment and all of a sudden the benefit of "fixed" home loan is smashed

thankyou
professor robots

You only need to pay break fee or economic cost only if the interest rate goes down against your prediction. However, if the interest rate is actually going up as anticipated you will end up having economic gains from the bank. And if this is the case, i can break it anytime.

 

[tech/a]

With interest rates at their lowest in 40 yrs you'd have to believe that now is the best time to lock down.

But this maybe the case for another 2-3 yrs.
Stagflation will hit and when it does so will interest rates rise.
I personally will be locking down mine in a year or 2 for 7 yrs if I can get it at a fair rate.

As for breaking a fixed loan its no problem if the rate is higher at the time on variable---they will fall over themselves as they shove a biro in your hand!

 

[chatty]

I actually wants to see the opinion of the people in this forum about the future interest rate.

The debate about deflation and inflation, whole sale funding, RBA cut are sending confusing message for interest rate in the future.

 

[MRC & Co]

I still think rates will fall further here in OZ.

 

[robots]

You only need to pay break fee or economic cost only if the interest rate goes down against your prediction. However, if the interest rate is actually going up as anticipated you will end up having economic gains from the bank. And if this is the case, i can break it anytime.

hello,

you sure about that? lots of particulars in bank contracts with fixed rate home loans being a very specific contract with the interest rate being irrelevant for the bank

interest rates who knows man its all pretty much irrelevant,

they go up you get more for your cash in the bank, loans cost more

if they go down you get less for cash in the bank, loans cost less

thankyou
professor robots

 

[Buckeroo]

Not advise, but if I could afford the rates now, but can't afford above 10% then I'd would probably lock them in. At least then if I keep my job, good chance I would keep my house if things go bad.

I bought my first home in NZ in the eighties & my mortgage rate got to 21%. In Australia I think it got to 18%. Scary ah?

For what its worth, I think the next phase is inflation so rates may begin to rise at least by the end of the year.

Cheers

 

[trainspotter]

RBA have kept their rates stagnant and yet CBA has raised their fixed term 5 year rate by.8%. Interest rates fell by RBA and all 4 major banks did not pass on any rate cuts and blamed wholesale funding and costs of outsourcing of overseas borrowing costs. Try asking for funding on a 90 day bill at the moment! Rate is 4% above RBA standard and they still hit you with a 2% application fee as standard. Argue the toss and you should be able to get it down to a respectable $2,500 app if you are geared right. ie Lots of LVR and cash flow.

tech/a is right with his comment of stagflation. This is a real concern and undoubtedly will lead to rising costs of bank profitability therefore passing interest rate increases onto consumers. Nevermind they are still making 3 billion dollar profits. Nevermind the RBA has not increased their wholesale funds available to the banks.

An early termination fee OR early exit fee will apply when you break your agreement (fixed term) and is usually set out in a formula as follows:

The approximate amount of loss suffered by a financial service provider can be estimated by multiplying the amount of loan by the remaining term of the fixed interest rate period and the movement in the financial serice providers cost of funds. If you have a fixed rate loan of $100,000 that has 2 years remaining with a movement of cost of funds of 1.00% would be in the vicintiy of $2000. ($100,000 x 2 x 1%)

Some banks will just charge a fee (usually between $2000 up to $5000) Check the fine print on the documentation.

You will usually attract a release fee as well but this is standard with all banks. Normally arond $200 to $300 to release mortgages and attend settlements etc.

Would I fix funds right now? It all depends on ones circumstances. Do you require a guaranteed rate of repayment to meet your financial commitments? Then yes. You should. Bear in mind you cannot repay any more or any less than the agreement with your financial institution will allow. You come into some cash ... can't put it on the mortgage without a fee incurred. Hit the hard times and need to sell the house. Expect a fee.

Once again it is up to the individual and their circumstances to decide.

 

[Bafana]

Am looking to take a home loan to buy second house and am hoping fixed rates will be the way to go. The low low rates was one of the reason why I am taking this move now.

My concern is that if I wait to see what the rates do they will start a steady march upwards as the economy recovers later this year (unless there are anymore suprises) but the march may be slowed (the banks may not be able to get away with hiking rates even when the investment economy is taking off) as company's have taken the opportunity to prune their workforces and fear (once bitten twice shy) holds fast - Lets face it recessions are a great excuse for the facist pig dogs (said with loving care) to increase profitability on the up swing especially in Aussie where our employee costs are so high.

BTW does anyone else feel totaly ripped of by enforced Super Funds. They makes us double down on them and then let the economy tear our throats out. Singapore's CPF model with a lower but fixed rate of return maybe a better option otherwise the govt just gambling with our money. Any fund managers out there reading this ~ people really don't like you very much. Your not paranoid. Feel the love. Dreading my next statement.

 

[jbocker]

Periodically I look at the fixed rates on the bank websites, they are usually reviewed by the banks weekly. Been noticing the longer term rates 7years+ have been going up for a while as I was interested in fixing long term investment property loans. Usually found the bank I have the loans with were equal to the best (by luck). A snap shot of some rates I recorded...
2Sep08 7yr 8.39%
18Feb09 7Yr 6.99%
26Mar09 7Yr 6.99%
I didnt make a note but recall that a couple of weeks ago
7Yr 7.19 or 7.29%
just looked today
7Yr 7.79%

Would I fix? A home loan - Dont know...maybe partly say 50% for a term you are happy with. I believe what to do is this assume a higher rate you suspect you will being paying in years to come and start paying that now. While the rate remains under that you are paying principal.
Investment loan... maybe not fix, there is some offset with taxation against earnings anyway.
Banks have the grip on us, and there is only a slim chance that anyone can pick the best option. I do think that longer term we will be paying a lot more than at present.

 

[trainspotter]

Bafana wrote "Am looking to take a home loan to buy second house and am hoping fixed rates will be the way to go. The low low rates was one of the reason why I am taking this move now."

My general rule of thumb in such matters is that for investment properties I would have at least a 5 year plan. I would fix the rate as then I know exactly what outgoings are proportionate to income I should receive. Does not matter if rates go up. If rates are going up then inflation must be going up (or about to go up) therefore house prices should be following suit.

Interest rates are incredibly low and it does not matter if THE RBA cuts their rate. We have seen the greedy banks NOT PASS ON some or if not all of the rate cut. Based on this information I would not be holding my breath for a lower rate to come along. Investment property = fixed term in my book.

Now this principle applies for my strategem and might not necessarily be the right way for you to go depending on your situation. Talk to many "professionals" as you can on the matter. Then make your own mind up.

 

[kincella]

I think there are more rate cuts coming and we should have a better idea after Oct.....the housing boom in Melb made me think the RBA could raise rates to curtail the little boom....but too many other factors to counteract it....
in the meantime....have a look at this.......

CHINESE banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $US1000 billion ($A1231 billion) in new lending issued since December. Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing little to help lift the world economy out of slump.

Fitch Ratings has been warning for some time that China's lenders are wading into dangerous waters, but its latest report is even grimmer than pessimists had suspected.

"With much of the world immersed in crisis, China appears to be one of the few countries where the financial system continues to function largely without a glitch, but Fitch is growing increasingly wary," it said.

"Future losses on stimulus could turn out to be larger than expected, and it is unclear what share the central and/or local .................

http://business.theage.com.au/business/chinas-banks-may-have-a-tiger-by-the-tail-20090630-d3v6.html

 

[Bafana]

Bafana wrote "Am looking to take a home loan to buy second house and am hoping fixed rates will be the way to go. The low low rates was one of the reason why I am taking this move now."

My general rule of thumb in such matters is that for investment properties I would have at least a 5 year plan. I would fix the rate as then I know exactly what outgoings are proportionate to income I should receive. Does not matter if rates go up. If rates are going up then inflation must be going up (or about to go up) therefore house prices should be following suit.

Interest rates are incredibly low and it does not matter if THE RBA cuts their rate. We have seen the greedy banks NOT PASS ON some or if not all of the rate cut. Based on this information I would not be holding my breath for a lower rate to come along. Investment property = fixed term in my book.

Now this principle applies for my strategem and might not necessarily be the right way for you to go depending on your situation. Talk to many "professionals" as you can on the matter. Then make your own mind up.

Sounds like good advise.