Fixed Rate loans..........

Discussion in 'Loans & Mortgage Brokers' started by Rolf Latham, 19th Mar, 2020.

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  1. JohnPropChat

    JohnPropChat Well-Known Member

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    ING doing 2.09%, won't be long before we see sub 2% rates from some lenders but big 4 may not drop their rates by a whole lot more.
     
  2. Waterboy

    Waterboy Well-Known Member

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    Yes that's true, but irrelevant.

    How are banks calculating their break costs for Fixed Rate Loans? Have they amended their PDS/T&Cs to make reference to AOFM/RBA rates/facilities?

    Besides, what's preventing the cash rate from becoming zero or negative (despite denial by the RBA), when the proverbial hits the fan?
     
    Last edited: 5th Apr, 2020
  3. Waterboy

    Waterboy Well-Known Member

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    They want the 3y in the curve to get close to the cash rate. That's what they're doing when purchasing Govt bonds. The swap rate is still relevant as a pricing mechanism and that's what the RBA is targeting.

    The RBA is not lending at 0.25% for 3 years to the banks to originate home loans. The facility is only for business loans, specifically SMEs.

    Read their statement carefully.
     
  4. JohnPropChat

    JohnPropChat Well-Known Member

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  5. euro73

    euro73 Well-Known Member Business Member

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    So you're saying it's irrelevant that it's irrelevant ?

    Which Fixed Rate Loans???? I'm not talking about loans funded from the traditional pots of money that they traditionally buy money from. In fact, I'm not talking about break costs at all. I didn't even mention break costs.???? I just mentioned that this facility from the RBA is now available and explains the new lower 1,2 and 3 year fixed rates that have suddenly come to market in the last 2 weeks or so from many lenders. Forgive me ...but what is the point you are making?

    I did read it carefully. You may be confusing the INITIAL allowance with the ADDITIONAL allowance for businesses. When you do read it carefully, you will notice that they will have access to ADDITIONAL low cost funding - over and above and separate to the $90 Billion I referenced , which is for Australian residential households - IF THEY EXPAND THEIR LENDING TO BUSINESSES.


    Objectives
    The Reserve Bank is establishing a facility to offer three-year funding to authorised deposit-taking institutions (ADIs). The facility has two objectives:

    1. to reinforce the benefits to the economy of a lower cash rate, by reducing the funding costs of ADIs and in turn helping to reduce interest rates for borrowers. It will complement the reduction in funding costs from the Reserve Bank's target for three-year Australian Government bond yields
    2. to encourage ADIs to support businesses during a difficult period, ADIs will have access to additional low-cost funding if they expand their lending to businesses over the period ahead. The scheme encourages lending to all businesses, although the incentives are stronger for small and medium-sized enterprises (SMEs).

    It goes on to say ....

    The Initial Allowance will be set at 3 per cent of a participant's Total Credit Outstanding to Australian resident households and (non-related) businesses

    The Additional Allowance is equal to the sum of the following:

    1. one times the dollar increase in Large Business Credit Outstanding from the three months ending 31 January 2020 through to the three months ending 31 January 2021 (if there is a decline in Large Business Credit Outstanding, then this is zero)
    2. five times the dollar increase in SME Credit Outstanding from the three months ending 31 January 2020 through to the three months ending 31 January 2021 (if there is a decline in SME Credit Outstanding, then this is zero).

    The 90B is available for the purposes of originating resi loans to households. Sorry you disagree. Everyone else- make hay while the sun shines .... money is crazy cheap for 1,2 and 3 years.
     
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  6. Waterboy

    Waterboy Well-Known Member

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    3 per cent :rolleyes:
    big deal :rolleyes::rolleyes::rolleyes:

    This is the big deal, that will mostly be funded by the $90B:

    "The Additional Allowance is equal to the sum of the following:

    1. one times the dollar increase in Large Business Credit Outstanding from the three months ending 31 January 2020 through to the three months ending 31 January 2021 (if there is a decline in Large Business Credit Outstanding, then this is zero)
    2. five times the dollar increase in SME Credit Outstanding from the three months ending 31 January 2020 through to the three months ending 31 January 2021 (if there is a decline in SME Credit Outstanding, then this is zero)."

    The reality is a lot of funding will still come from deposits and for FI loans, term funding, using swap rates as pricing. BTW - swap rates are now moving closer to the RBA target in the 3y part of the yield curve of 25bps.

    [FYI - I work in Banking Treasury - I'm a bona fide "insider" :cool:]
     
    Last edited: 5th Apr, 2020
  7. Waterboy

    Waterboy Well-Known Member

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    were you even reading the context of my posts that you quoted?

    and do you know the title of this thread?

    my point is - fixed rates can very much possibly still go lower than they are today!
     
  8. euro73

    euro73 Well-Known Member Business Member

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    Still not grasping it, it seems. That's the ADDITIONAL you are now quoting, having lost the battle on INITIAL.

    Look. Two pots.
    First one ( and here's the hot tip- that's why they used the word INITIAL; because it comes FIRST) is 90BN
    Second one ( that's why they used the word ADDITIONAL..you know, like in addition to what is available in the initial pool )

    First and Additional. Not difficult stuff to grasp.

    No one has suggested other funding sources will cease. In fact. I am certain that I wrote that people shouldn't assume this cheap money will be available for the duration. Of course other funding will carry on. The total volume of resi mortgages in this country exceeds 1.6 Trillion. Very large percentages of it roll over regularly. I don't recall suggesting anywhere that the RBA was covering 1.6 Trillion. What I suggested was that for a while, the normal sources for fixed money will be replaced "for the time being" by this source... They would be redundant for a short while, was the point, while a 90Bn pool of money set at 25bpts for 3 years was available. That's the beginning, middle and end of the scope of what I wrote. You have introduced break costs and all manner of treasury bingo words to fill column inches... most of which was unrelated to anything I wrote about.

    Now, if all of a sudden cheaper funding did become available ( less than 0.25% would be the definition of cheaper) maybe fixed rates will get lower - I doubt it very much but as I also said- never say never ..... so being a treasury man, please explain where you believe that source would come from.
     
  9. Observer

    Observer Well-Known Member

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    Hi @Waterboy, @euro73. If I'm looking to break the existing fixed period in the near future and re-fix at the existing lower rates. I've done the math, will be ahead even with the break fees. Do you think it makes sense to break the fixed period sooner rather than later? I've been checking with the bank the break fee for the last week or so and looks like it's been trending up a little bit. I suppose the reason being that the swap rate trend down.

    I can't decide whether to break today or wait for a bit to see if the swap rates can go higher so that the break fees become lower. Looks like the latter is an unlikely scenario in the current env. Maybe I should just break today, re-fix and be done with it.

    Also thinking whether to refix for 1, 2 or 3 years. It's my PPOR which I'm happy with and don't plan to sell in the next 3 years. Personally I can't the the rates going much lower. I was thinking whether to fix for 1 year now and re-fix in a year for a further period or, alternatively, fix for 2 or 3 year period now. Thoughts? Decisions, decisions...
     
    Last edited: 6th Apr, 2020
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  10. Greedo

    Greedo Well-Known Member

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    I share your quandary. I broke a split (10% of an IP) yesterday and fixed for 1 year primarily because I want to use an offset against it at that time. Now decisions on other splits used for share investing. 1,2 or 3 years or wait a bit. I’ve regretted fixing for 3 and 4 years before. It’s just too long a period where many things can change
     
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  11. Observer

    Observer Well-Known Member

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    I’ll also likely create a few splits for share investments etc. In terms of fixed period I’m leaning toward 1 or 2 years.

    My current offset is linked to IP loan, when I break fixed period on my PPOR loan I’ll create a split and attach offset to that split so that the interest on IP loan is fully deductible.
     
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  12. euro73

    euro73 Well-Known Member Business Member

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    You are also assuming these rates will be available if you wait.... they may be. They may not be. I looked on Amazon, eBay, Alibaba, Groupon and Catch, but couldn't find any of those glasses that see the future :) Only you can decide what you ought to do for you and your family
     
  13. Observer

    Observer Well-Known Member

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    In the end decided to break the fix period yesterday. Currently creating a few splits and re-fixing then (mostly for 2 years, some for 1 year). 2.29% rate made it worth it to break the fixed period in my case. Not advice, do your own math.
     
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  14. spludgey

    spludgey Well-Known Member

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    I'm toying with the idea, let's see what the RBA does today.
    s
     
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  15. Niche

    Niche Well-Known Member

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    I am with @spludgey even though I think it is hard to imagine the rates going even lower, it was hard to imagine they would get here in the first place so who knows. Plus surely there is no harm in waiting a few more hours before making the decision
     
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