Fix or Not - Predictions on Interest Rate

Discussion in 'Loans & Mortgage Brokers' started by PandDos, 5th Sep, 2018.

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Direction of interest rates in the next 3 years

  1. Drop

    8.3%
  2. Stay the Same

    20.8%
  3. Increase

    70.8%
  1. PandDos

    PandDos Active Member

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    2nd Jul, 2018
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    Location:
    Sydney
    Hi All... I’m currently refinancing and pondering the options of variable or fixed. The best deal I’ve found is 3.99% (IO Fixed 2 or 3 years) and 4.19% (IO Variable) for investors.

    I'll be keeping a portion of the loan variable to get the benefits of an offset account. But it's the second portion of the loan that i still need to decide on.

    From what I’ve heard the RBA is not keen to drop the cash rate further, and the bank funding costs are unlikely to drop if the world economy continues to improve. The conclusion: the best case scenario is that the bank rates will stay the same, and the more likely scenario being rates increasing in the medium term. I think there's a good argument to fix so I can de-risk on the rates rising.

    Does anyone have some wisdom to share on the medium term (3 years) future of interest rates, as this will ultimately be the decider on fixing or not.
     
  2. Stoffo

    Stoffo Well-Known Member

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    With US rates on the rise, this makes borrowing (by the banks to lend to us) more expensive, so to retain their profit margins the banks will want to raise rates.

    Our economy on the other hand isn't all that great, hence why the RBA haven't raised rates, so if the economy tanks then rates will go down.

    There was a lot of talk on this subject 18 months ago
    I know people who fixed and are now behind halfway thru the 3 year term

    Am sticking with variable p&i for now :rolleyes:
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
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    Location:
    Gold Coast (Australia Wide)
    fixed rates and variable rates have different core pricing mechanisms I believe.

    The fact that we can get great middle term fixed rates and ok long term fixed rates is because large institutional investors, such as your super fund need to lock away some surety around their short to middle term cash income.

    Their view is that rates will be flat for that period.

    variable rates................ on the other hand - the RBA used to have a level of control, but to a large extent, they havent needed to touch the markets.

    Steady as she goes from the RBA, but OS pressures and "Banana Republic" concerns from overseas sources will likley push rates upward, as we are already seeing .........

    But, if I really knew, i be sitting on my hundred metre boat in the Whitsundays :)

    ta
    rolf
     
    paulF likes this.
  4. Waterboy

    Waterboy Well-Known Member

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    Denial is Not a River in Egypt
    As the US Federal Reserve hikes rates and sucks money out of the financial system, in an attempt to prevent an overheating US economy, our Aussie banks (who rely a lot on wholesale funding due to inadequate domestic deposits) will have to compete for funds at a higher rate. They won’t absorb the higher cost of funds—they will always pass it on to borrowers and depositors in order to maintain thier profit margins.
     
  5. Waterboy

    Waterboy Well-Known Member

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    Denial is Not a River in Egypt
    I say it’s more likely to go up than down. The RBA rate and banks’ borrowing rates have lost the strong correlation. It’s the US Feds who are really in control.