Is it time to lock in a fixed interest rate?

[kincella]

where did I state you could only get 1.5%
this was an extract from the article...its not my words....
and I did post others were offering 7% etc...dont have the time to go back and copy every post on this one article

the article quite clearly states cba and nab slashing rates
I then posted the cannex comparison chart which again shows a variety of different rates.......but the article was about the big 4
.......sorry but I dont read it as 1.5 being the only rate available in all my posts on this article............
being selective....???maybe .. but again, only relating to this article....not across the board rates

copy of the extract again..................................

THE MAJOR banks are aggressively repricing their deposit books ahead of next week's expected rate cut by the Reserve Bank.

With the political pressure mounting on all banks to pass on the full benefit of further easings of monetary policy, two of the major banks have taken drastic steps to protect their funding margins by slashing deposit rates.

From this morning, National Australia Bank will slash the rate it pays on three month fixed term deposits from 4.2 per cent to 2.1 per cent.

The NAB move comes after more aggressive repricing by Commonwealth Bank in recent weeks in which it slashed its three month fixed term deposit rate from 4.2 per cent to 1.5 per cent.

http://www.news.com.au/heraldsun/sto...67-664,00.html

 

[Prospector]

Gday sir O . does the break fee actually apply if the loan is payed out in full ?

Yup!

 

[nunthewiser]

Yup!

thanks....

 

[Sir Osisofliver]

Ah, here is one from a quick google:

http://www.quickdirect.com.au/Content/To-fix-or-not.aspx
In this article, we use Reserve Bank of Australia (RBA) data to go back through time and compare the cost of fixed and variable mortgages. We conclude that:

* 83% of the time borrowers would have been better off in basic variable rate products than 3 year fixed rate products.

Hey you added a bit!!

Wow 83% of the time eh? I love probability stats like this. I note that the article doesn't say how much better off you would have been had you actually managed to time your entry correctly in Mid 03. I wonder what was happening back then eh?

I mean sure if you just randomly throw a dart and say I'll fix my rate now thanks, quite possibly 83% of the time you'll get it wrong. But how well does that probability measure apply to something that has levels of correlation to other economic indicators?

When the market bottomed in '03 and our economy once again started slowly heating up, do you really think that there is a 50/50 probability that rates would go lower or is the probability skewed towards a higher rate occuring over the next three years?

If you fixed your rate in Early 08 it's like getting into the market in November 07. You'd probably decide that this share game thing was a waste of time because your timing was off. But being aware of your timing can give you a greater probability of success in loan management just as it can in share trading. You just have to recognise the patterns.

Try using this data http://www.rba.gov.au/Statistics/Bulletin/F01Dhist.xls for a longer data set and compare that against what was happening at the time and see if you can find any meaningful patterns.

Cheers
Sir O

 

[Sir Osisofliver]

Gday sir O . does the break fee actually apply if the loan is payed out in full ?

As Prospector said Nun - they sure do...wanna know why?

Because you have the audacity to pay out the loan early (shock horror) they get the use of your security value for less time. So lets say you have a 400k loan on your 800 K asset. That gives them the lending capacity to lend out a further 368k. (The asset value minus the ~8% bit they aren't allowed to lend out and keep in reserve). You win lotto and pay off the loan, suddenly they don't have the asset, so the loan of 368k has to be guaranteed from a different source.

The Break fee counts as pure cash to the bank, so that gets added to the 8% reserve which makes their numbers look better. They only need a small amount of cash in this area to justify a larger amount of borrowings and hence your break fee makes up the difference in their lending values.

Neato Eh?

Cheers

Sir O

 

[kincella]

off topic...but where does you nic osisofliver come from ??

 

[Prospector]

Hey you added a bit!!

Yeah, I find a statement that supports mine I am gonna post it in the required 20 minutes!

Wow 83% of the time eh? I love probability stats like this. I note that the article doesn't say how much better off you would have been had you actually managed to time your entry correctly in Mid 03. I wonder what was happening back then eh?

The thing is Sir O, people buy a home when they need to buy a home; perhaps when they marry, leave home, separate, divorce or death. The matter of timing is basically irrelevant - it is random. Buying a house is not about timing the interest maze at all, it is about doing something that you need to do, at the time! And what interest rates are doing at the time is way out of your control.

Investment Property - obviously different. That you can time according to the market forces.

Because you have the audacity to pay out the loan early (shock horror) they get the use of your security value for less time. So lets say you have a 400k loan on your 800 K asset. That gives them the lending capacity to lend out a further 368k. (The asset value minus the ~8% bit they aren't allowed to lend out and keep in reserve). You win lotto and pay off the loan, suddenly they don't have the asset, so the loan of 368k has to be guaranteed from a different source.

So are you suggesting that they can use asset value of say my property, to lend out more to third parties?

 

[nunthewiser]

As Prospector said Nun - they sure do...wanna know why?

Because you have the audacity to pay out the loan early (shock horror) they get the use of your security value for less time. So lets say you have a 400k loan on your 800 K asset. That gives them the lending capacity to lend out a further 368k. (The asset value minus the ~8% bit they aren't allowed to lend out and keep in reserve). You win lotto and pay off the loan, suddenly they don't have the asset, so the loan of 368k has to be guaranteed from a different source.

The Break fee counts as pure cash to the bank, so that gets added to the 8% reserve which makes their numbers look better. They only need a small amount of cash in this area to justify a larger amount of borrowings and hence your break fee makes up the difference in their lending values.

Neato Eh?

Cheers

Sir O

Thanks for answer

i knew all that regarding the onlending/credit side

just was inquisitive if it was fully penalised, the early payout on fixed ( i have never had one nor read the "fine print"....


cheers

 

[Sir Osisofliver]

Yeah, I find a statement that supports mine I am gonna post it in the required 20 minutes!



The thing is Sir O, people buy a home when they need to buy a home; perhaps when they marry, leave home, separate, divorce or death. The matter of timing is basically irrelevant - it is random. Buying a house is not about timing the interest maze at all, it is about doing something that you need to do, at the time! And what interest rates are doing at the time is way out of your control.

Ah emotion in buying decisions - don't you love it?? I'm forcefully reminded of the day I took my wife engagement ring shopping where we had carefully discussed the agreed upon process of laying out few dozen rings, and she picks the top five rings she likes (she'd learnt by then that trying to hint what she wanted was a bad idea). We walked in and about two dozen rings in... "That one".. "Ok lets put that one aside and.." "No....that one." "Are there a.." "That one. I don't like any of the others." "Yes dear"

Of course I understand that the choice of your PPR is an emotionally driven decision, but if you are going to hold that asset for a long period of time and have the sense to pick your fixing moment...why wouldn't you??

Investment Property - obviously different. That you can time according to the market forces.


So are you suggesting that they can use asset value of say my property, to lend out more to third parties?

Bewdy eh? They lend you $100k and for doing so have as security an asset worth more than $100k Lets say $300k. So if you have as security an asset with an unused security value of $200k, they'll reserve a small portion (which they are required to do) and lend out the rest of it to someone else. (It's not that simple of course - but that is the gist of it). For a slightly more in depth discussion (but not much) go read newbie lessons.

Cheers

Sir O

 

[Sir Osisofliver]

off topic...but where does you nic osisofliver come from ??

Ahem it was given to me by my clever yet sarcastic daughter as a character name from one of those online multiuser games thingies. Don't laugh or the bazillion level fighter will slash you into a thousand bits.

 

[Prospector]

Bewdy eh? They lend you $100k and for doing so have as security an asset worth more than $100k Lets say $300k. So if you have as security an asset with an unused security value of $200k, they'll reserve a small portion (which they are required to do) and lend out the rest of it to someone else.

And here was I thinking I owned most of my home!
I agree that timing is an important thing, it is just the opportunity doesnt always present itself at the right time.

Your wife sounds an entirely reasonable person btw!

 

[Sir Osisofliver]

And here was I thinking I owned most of my home!
I agree that timing is an important thing, it is just the opportunity doesn't always present itself at the right time.

Your wife sounds an entirely reasonable person btw!

Oh it gets better! If they are greedy and short-sighted, they can also package those loans together and then sell the debt as an instrument for even more money..hello Global Financial Crisis.

My wife is an entirely reasonable person in any situation that doesn't involve jewelry, whitegoods, crockery, cutlery, floor coverings, computer equipment and any object with a connection to our darling offspring. At least I was able to convince her that cars are a depreciating asset and she couldn't have a BMW no matter how cute it looks.

Cheers

Sir O

 

[Julia]

At least I was able to convince her that cars are a depreciating asset and she couldn't have a BMW no matter how cute it looks.

Cheers

Sir O

Oh God, what a total spoilsport you are, Sir O. Think of it this way:
Your wife driving a BMW would add immeasurably to your own self image.

 

[nomore4s]

My wife is an entirely reasonable person in any situation that doesn't involve jewelry, whitegoods, crockery, cutlery, floor coverings, computer equipment and any object with a connection to our darling offspring. At least I was able to convince her that cars are a depreciating asset and she couldn't have a BMW no matter how cute it looks.

Oh so she's a woman then:




Sorry Julia and Prospector but I couldn't resist.

 

[Sir Osisofliver]

Oh God, what a total spoilsport you are, Sir O. Think of it this way:
Your wife driving a BMW would add immeasurably to your own self image.

So what you are sayining is the type of car my wife drives reflects on me? If I get her a Stretch Hummer do you think people will mistake me for 50 cent? WORD shorty WORD.

cheers

Sir O

 

[Julia]

Oh so she's a woman then:




Sorry Julia and Prospector but I couldn't resist.

Prospector might have some smart reply, nomore4s, but I shall just maintain a dignified, scornful silence.:

 

[Prospector]

Prospector might have some smart reply, nomore4s, but I shall just maintain a dignified, scornful silence.:

Actually Julia, I didnt have a smart reply which is why I remained silent!nomore4s is right!: Sir O probably omitted clothing though! Especially shoes and handbags! Apparently.

 

[Sir Osisofliver]

Actually Julia, I didn't have a smart reply which is why I remained silent!nomore4s is right!: Sir O probably omitted clothing though! Especially shoes and handbags! Apparently.

Um actually, she's not so bad on that front for some reason. Perhaps it's because we spend probably about the same amount of money per year on clothes. I buy two or three nice suits, a pair of jeans or two, a few shirts and ties, maybe a belt and shoes each year. Call it 3 maybe 4 grand. She doesn't buy designer so she spends about the same.

Maybe I'm lucky I think I'll go tell my wife I love her frugality with clothing.

Cheers

Sir O

 

[Julia]

Maybe I'm lucky I think I'll go tell my wife I love her frugality with clothing.

Cheers

Sir O

See? Just a matter of looking at her spending from a different perspective.
Now she's frugal. Wacko!