Fixed rates

Discussion in 'Loans & Mortgage Brokers' started by NickWCBA, 31st Jul, 2020.

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  1. NickWCBA

    NickWCBA Well-Known Member

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    Hello brains trust,

    So my 2 of my fixed periods are going to end shortly. I’m looking for others opinions on fixing again for 1 or 2 years.

    Im leaning towards 1 year as I believe competition will continue to drive rates down.
    However, 2 years in some cases is providing a slightly better rate. Plus this would lock me in at a sub 3% rate for longer.

    the other option is a combination of both. Eg. Loan 1 - fix 1 year, Loan 2- fix 2 years.

    I would love to hear thoughts and opinions please.
     
  2. Stoffo

    Stoffo Well-Known Member

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    What rate did you lock in at last time ?
    What rates are you looking at now ?
    What is the remaining loan term ?
    Are you leaving a % variable (top up/offset) ?
    Where do you see the economy going ?
     
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    IP or PPOR ?

    Margins on fixed are already v tight

    ta
    rolf
     
  4. NickWCBA

    NickWCBA Well-Known Member

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    Both rates were locked in at 4.24% for 2 years. Remaining loan term 26 years 6months.
    Yes to the variable % for offset.
    Economy from my perspective will bounce back strong . However, I don’t believe we’ve bottomed out. Hence why I believe rates will come down further... but not necessarily due to RBA dropping the cash rate.
     
  5. euro73

    euro73 Well-Known Member Business Member

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    Fixed Rates are only this low because the RBA is buying the market at 0.25% for up to 3 years , to ensure control . Never say never , but the likelihood of 1,2 or 3 year rates getting lower is very slim .
     
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  6. Ravi Gupta

    Ravi Gupta Active Member

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    With all the information/data available in public domain, predicting future interest rates is still a gamble.

    The decision whether you should fix rates should be based on your personal financial situation. If you can not afford fluctuations in cash-flow go for fix rates else variable.

    I know this answer is not as exciting as looking at crystal ball.
     
  7. fl360

    fl360 Well-Known Member

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    I think the rates is as low as it can be, the issues could be coming from the other side of the formula - the rental return...

    good and settled tenants - never a better time to buy, reducing rental demand.
    other tenants - move back home, on the street, not paying rent.....
     
  8. NickWCBA

    NickWCBA Well-Known Member

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    Both investment loans
     
  9. NickWCBA

    NickWCBA Well-Known Member

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    Similar things would have been said when the rates dropped from 8% to 4%
    I just wonder if competition among banks rather than RBA dropping rates will push rates down. Maybe low 2s or high 1s? Or am I living in fairlyland?
     
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  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Margins are already skinny ..............

    ta
    rolf
     
  11. Zimplestiltskin

    Zimplestiltskin Well-Known Member

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    Given the increase of country debt aren't we expecting an increase in interest rates?

    Or has that pattern been broken?
     
  12. euro73

    euro73 Well-Known Member Business Member

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    The cash rate was not at 0.25% when rates were at 4%. And the RBA Governor has made it very clear he is done. That doesn't mean he wont be forced to take drastic steps should the need arise.... but it does mean there is no appetite for it from the RBA, which means rates are very very unlikely to be further reduced. He views 0.25% as ground zero.

    Margins for lenders are uber uber skinny already .... any further reductions would eat into those margins and reduce profitability at a time when profitability is already under pressure, and likely to come under even more pressure as mortgage deferments cease and unemployment and mortgage arrears start to peak - and besides, even if variable rates were reduced 10 or 15bpts by lenders willing to take a margin hit, they would still be higher than fixed rates. The gap is @ 40-50bpts between the best fixed rates and the best variable rates, in most cases. So you'd need to believe variable rates could fall by MORE than that to better off.... as I said before- never say never, but very very very unlikely .

    Really, money is unbelievably cheap however you look at it... so its kind of a first world problem being debated here :)
     
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  13. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    If there's one thing that I've learned it's that is appears that rates can always drop further. When rates got to 4% I though they were ultra low. I was wrong. I thought the same at 3%, wrong again.

    So asking for a guarantee that rates are at the bottom is folly.

    Now I ask myself what it would take for rates to go lower. The difference between variable and fixed rates is about 0.5%, that's the equivalent of 2 RBA rate cuts. Realistically though, lenders haven't been passing on full rate cuts and it would take at least 3-4 rate cuts just to get them to be the same.

    The RBA rate is currently 0.25%. Negative interest rates are possible, but the government is actively doing things to try avoid this situation. It's possible that further rate cuts may occur, but very unlikely. Overall I'd say that variable rates are unlikely to go cheaper than the current fixed rates (but I have been wrong before).

    The other question is are fixed rates at the bottom? They're actually not. Most of the majors are offering 2.29% for owner occupier 1-3 years fixed. There has been occasional examples of 2.19%. This suggests that lenders may be willing to drop the fixed rate a little depending on any number of factors at their discretion.

    If you fix today, you may miss out on something slightly better in the future. But it probably won't be by much and it's quite unpredictable. In the grand scheme of things, if you're worried about 0.1% or 0.2%, you probably shouldn't be borrowing the money in the first place.

    There's other considerations of course, such as only limited ability to make extra repayments on fixed rates, plus the absence of an offset account. However if you believe fixing is a suitable to your needs, it's probably a good time to do it.
     
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  14. NickWCBA

    NickWCBA Well-Known Member

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    My comments are really around lenders and their competitiveness and willingness to drop even further to win business. As many of you have mentioned, I don’t suspect the RBA to go any further than 0.25%. However, I do notice that 1 year rates are slightly higher than 2 year rates. Now read into that what you will but my thinking is competition among banks may drive rates lower.
    Agree... first world problems!
     
  15. NickWCBA

    NickWCBA Well-Known Member

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    A big thank you to all that have taken the time to respond!
     
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  16. Blueskies

    Blueskies Well-Known Member

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    I made this jump a couple of weeks ago and fixed 2xIP loans at WBC. I got 2.5% for two years. They were adamant this was the best they could do at the time. Could they inch a bit lower over the next few months, maybe, but given I was on 3.1% variable at that point I was pretty happy to take the leap.
     
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  17. euro73

    euro73 Well-Known Member Business Member

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    A bird in the hand and all that :)

    The other thing everyone should remember about these fixed rate discussions is this; fixed rates were 60-80bpts higher than where they are right now, before the RBA stepped in with what is effectively a 90 Billion line of funding for up to 3 years . When that pool of money is spent because the RBA has purchased 90 Billion of 1-3 year RMBS, everyone is assuming the RBA will agree to purchase another XBillion at the same low rate. And I agree that they probably will do that BUT if they don't, fixed rates could easily revert to high 2's again .
     
  18. NickWCBA

    NickWCBA Well-Known Member

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    Really sharp rates Blueskies. Just out of curiosity did you negotiate yourself or use a mortgage broker?
    I ask because sometimes I feel many brokers just take a look at their panel of lenders and the rates on offer, without negotiating what could be an even better price.
     
  19. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    My take on the shorter term rates being slightly lower with some lenders is 2 fold

    As you allude, an intro or lets get the deal in the door, with a loss leader, but also I suspect the cost of buying the one year bulk bonds is a little lower than the 2 to 3 years.

    ta
    rolf
     
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  20. Blueskies

    Blueskies Well-Known Member

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    Just me making a phone call and having a whinge to them.
     
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