Fixing interest rate

Discussion in 'Loans & Mortgage Brokers' started by milobear, 19th Mar, 2017.

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  1. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    If you choose to fix, it's not about the bank, it's about you and your circumstances if rates do rise. It's not a 'beat the bank' decision, but a 'what do I need to do to manage risk across my portfolio' decision.
     
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  2. Realist35

    Realist35 Well-Known Member

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    "Historically, 88% of the time, a consumer would have been better off borrowing at prime, compared to a fixed 5year rate. Moreover, even in today's relatively2 flat yield curve environment, I estimate that the forward-looking probability of success from borrowing at prime is approximately 65% and the average savings on a $100,000 mortgage is approximately $10,000. The main message is quite simple. Long-term stability has its price!"

    Thanks a lot, excellent paper!

    Basically he is saying that the only times consumers were better off on a fixed rate loans was during during unlikely economic scenarios.
     
  3. Ross Forrester

    Ross Forrester Well-Known Member

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    Yep - milvesky is a deep thinker and has done a lot of work that I like.

    This paper is great how it backs up the general comment that you are better of to go variable.

    Evidence. I love it.
     
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  4. Realist35

    Realist35 Well-Known Member

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    The success chance though is 65% at the time of writing (2001). Still a bit of a gamble:).

    It would be good to see a more recent analysis. I might flick him an email:p
     
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  5. dabbler

    dabbler Well-Known Member

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    I ay fixing now seems logical due too low rates that cannot go much lower, also clearly the down trend has been done and there will be an up trend, that has already started.
     
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  6. WattleIdo

    WattleIdo midas touch

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    When all the investors have fixed their rates, the banks will be free to comply with RBA trends....
     
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  7. dabbler

    dabbler Well-Known Member

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    Yeah, that is how I see it, I knew people paying 6% or so as they fixed some time ago, they were not concerned, as that fixing enabled them to budget properly.

    The only real downside is if you need to sell, but for those with multiple properties you can potentially swap security, although it is not as convenient.
     
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  8. Seal

    Seal Well-Known Member

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    Thanks Ross. I had a skim of the paper. Do you think when 'structural' changes occur eg APRA changing the rates for investors, that it may affect the fixed vs variable outcome?
     
  9. Ross Forrester

    Ross Forrester Well-Known Member

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    A structural change - like a long term increase in the capital reserves of banks over a period of time could affect the positions taken.

    However that prediction of a future long term structural change is not without doubt. It will be something that we look back upon in 15 years time and go "oh yeah. Look at that".