FHB is this an ok package, CBA

Discussion in 'Property Finance' started by bya38, 29th Oct, 2018.

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  1. bya38

    bya38 Active Member

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    I got a pre approval for 550K, saving 189K, rate 3.79 SVR from CBA (OO)

    this week, I made an offer on a house, spoke with the bank, and after some heated discussion, they propose this

    Loan 1

    Loan type: Standard variable rate home
    Loan amount: $74,000.00
    Interest rate discount approved: 1.47%
    Interest rate: 3.90%


    Loan 2
    Loan type: 2 year fixed rate
    Loan amount: $370,000.00
    Interest rate: 3.79%

    $395.00p/a package fee

    does it sounds alright, I don't understand how the fixed rate is lower than the variable
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You're probably assuming that fixed rates are the banks prediction of where rates will go and as rates are predicted to increase, the fixed rates must be higher. That assumption is incorrect.

    Fixed rates and variable rate loans have different funding sources and thus can have quite different delivery rates to the borrower. Like all parts of the economy there is a relationship between the two, but there's a lot of factors which can influence the rates independently of each other.

    The rates you're being offered are what the CBA is currently offering. There are better deals available though.
     
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  3. bya38

    bya38 Active Member

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    better deal like what ? thanks
     
  4. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Depends on your circumstances, but there's a few second tier lenders with better fixed and variable rates, plus lower fees. Speak with a broker to figure out what's most suited to your needs and circumstances.
     
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  5. jazzsidana

    jazzsidana Mortgage Brokers - Investment Savvy Business Member

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    Like @Peter_Tersteeg explained - different funding sources...

    Also, banks based on their analysis/forecast possibly see future drop in rates, hence trying to lock customers into fixed rates by pushing variable rates higher. Another way for banks to reduce risk and keep their books balanced!...

    Cheers,
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    How does that work ? Just asking coz I thought fixed and variable rates had independent pricing mechanisms ?

    ta
    rolf
     
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  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Why a heated discussion ?

    I assume that your belief is you cant repay/save more than 100 k or so over the fixed period, hence the 74 k variable split ?

    if you end up with an active debt recycle strategy you might find that fixed portion may be a little high, and you may have to go for a partial break.

    Further, why the 2 year, why not the 3 year which i recall is just marginally more.

    I guess aside from the rate, what client outcomes is the lenders proposal looking to achieve - what future goals questions have they grilled you about ?

    ta
    rolf
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Those rates are pretty decent - especially for a major and sub $500k in borrowings.

    Just ensure that the variable split is large enough so you don’t find yourself paying it off/offsetting it during the fixed period.

    Cheers

    Jamie
     
  9. jazzsidana

    jazzsidana Mortgage Brokers - Investment Savvy Business Member

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    Fixed rates essentially reflect what the market believes will happen to the official cash rate (and thus the standard variable rate) in the future. If the market anticipates that the official cash rate will rise, fixed rates will become more expensive because lenders assume variable rates are likely to rise in the future. If the market believes the official cash rate, and hence variable rates, will fall in the future, fixed rates will become less expensive.

    FIxed rates become cheaper than variable rates because the market is betting that variable rates will eventually fall even further in the future due to deteriorating economic conditions.
     
  10. jazzsidana

    jazzsidana Mortgage Brokers - Investment Savvy Business Member

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    Completely agree with Jamie..
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    agreed - i think

    I was more asking why you believe the below. I understand this as banks are increasing variable rates so that they get more fixed rate business ? id expect the lenders will maintain margins either way, its just with fixed rates they have passed that risk to someone else.

    Also, banks based on their analysis/forecast possibly see future drop in rates, hence trying to lock customers into fixed rates by pushing variable rates higher.


    ta
    rolf
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I don't disagree, but people often look at this in local terms. Most predictions for Australian interest rates are that they'll rise and purely by this logic that should mean fixed rates are higher...

    Thinking globally however, markets might be supporting falling rates and a lot of that fixed rate money comes from overseas. There's also exchange rates to consider as the Aussie dollar is looking fairly weak at the moment. It's arguable that the same logic on this level supports cheaper fixed rates.

    I'm not going to try to predict that rates will actually do, the economists can't get it right so what chance do the rest of us really have. I do know that there is a relationship between the two, but there's a lot of difference influences on that relationship.

    I also don't think that variable rates will drop overall. The RBA has said that further drops won't help their objectives and we're in a bit of a doldrums with rates this low. If fixed rates are lower than bottomed out variable rates, then the fixed rates are probably a fairly safe bet - but I could be wrong.