Should Australia allow 20-25 years fixed rates?

Discussion in 'Property Market Economics' started by igor1234, 4th Jul, 2022.

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  1. igor1234

    igor1234 Well-Known Member

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    i really like that US model, and some of the EU counties implement as well. lock in portion or all of loan for fixed rte. why we dont have it here? and will we ever?
     
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  2. melbourne171

    melbourne171 Well-Known Member

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    I know people in US who locked 25 year fixed eate at 4%pa last year. It is very good deal.
     
  3. Trainee

    Trainee Well-Known Member

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    What rate would you be willing to pay? And what sort of break fee? Theres nothing to stop a lender from offering it, other than cost.
     
    Last edited: 4th Jul, 2022
  4. datto

    datto Well-Known Member

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    The economic cost of breaking a 25 year fixed rate loan after 6 months could be really wicked.
     
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  5. Onlinedave

    Onlinedave Well-Known Member

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    The reason why Australia doesn’t have ultra long term fixed rates is not connected to regulation. It’s just about the unwillingness of global financial markets / investors to provide long term fixed rate debt to Australian banks at competitive interest rates.

    when you think about it, it’s really only the biggest of global economic zones that actually do have that luxury;m: the US, Europe and Japan come to mind (30yr fixed at 0.8% anyone?).

    Australia is basically deemed to small, not sufficiently diversified, and it’s household sector too leveraged, so basically too risky to warrant providing it (through its banks) with long term fixed rate debt at rates that would be low enough that anyone would actually want to borrow at.
     
  6. MTR

    MTR Well-Known Member

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    You can actually get 30 year loans, locked interest rate
     
  7. chewmylegoff

    chewmylegoff Well-Known Member

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    US have govt back intermediaries which have to buy loans which meet certain criteria. Banks aren’t putting 30 year fixed rate mortgages on their balance sheets and financing them by issuing 30 year bonds in the market, they’re selling them to Freddie Mac and Fannie Mae.

    That’s why a tiny bank in Nebraska will offer you a 30 year fixed rate mortgage. They aren’t perceived as a better credit risk by the market than westpac, they just have recourse to an intermediary which is required to buy the loan off them.

    Works well until there is a financial crisis and the govt is effectively on the hook for all the mortgage debt, I suppose…
     
  8. Lindsay_W

    Lindsay_W Well-Known Member

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    Why would anyone want such a long fixed period? a lot can happen in 20 - 25 years, I prefer flexibility.
    How many people stay with the one lender and product for the full 30 year loan term?
     
  9. Trainee

    Trainee Well-Known Member

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    The idea is that it protects borrowers from high variable rates. You still get the flexibility to refinance to a lower fixed rate or pay it out because there are no break fees. But only because the government basically holds the mortgages, which also means rates are low.
     
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  10. Serveman

    Serveman Well-Known Member

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    Yes I think this is the case. The banks have it all worked out so they have all the scenarios covered,
     
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  11. spludgey

    spludgey Well-Known Member

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    My cousin locked in something less than 1% for 10 years in Germany and he's got certainty what the next 10 year rate is as well (I can't remember but I believe it was well below 2%).
     
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  12. Waterboy

    Waterboy Well-Known Member

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    If a lender found it feasible, it would have been made available already.
     
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  13. wylie

    wylie Moderator Staff Member

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    This answers the question I always have when people talk about 30 year fixed rates in the US of "what happens if rates drop?".

    So if they can break and get a lower rate, that solves the problem we have of locking in a rate and having to pay to break it.

    I know someone who had to pay about $20k to break their high fixed rate, but locked in at a super low rate and after one year they were at break even, and from then on were saving a lot of money. I think they fixed for five years at the really low rates we had a year or so ago.