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Tracker loans

Discussion in 'Property Finance' started by Scott No Mates, 17th Oct, 2016.

  1. Scott No Mates

    Scott No Mates Well-Known Member

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    I hadn't previously come across these before - with the banks arguing that they would be asking a premium for such products.

    SMH Linky

    Google gave me: upload_2016-10-17_22-9-48.png

    • What sort of premium would the banks be asking for this product?
    • Would it be higher than a fixed rate loan?
    • Is it a fixed term?
    • Is there demand for this type of product?
    • How popular are they OS?
    • Are they a good product/should they be considered for investors or are they too limiting?
     
  2. TaylorChang

    TaylorChang Well-Known Member

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    tracker loan is used in UK. It's like variable rate here in Australia.

    I had once have a client from UK, never understand variable rate, but keep talking about tracker rate loan.... in the end we found it's the same thing, just different name here.
     
  3. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    They are and have been available here.

    Bankwest had one that got canned a few years back and Auswide have just released a version this week as well.
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    If, as @TaylorChang notes "it's another name for a variable rate loan", why is the Reserve Bank pushing it so hard and the big four opposing it as too complex? Might the big 4 have to move too quickly in line with reductions in interest rates? They seem to have no problem when the rates rise though.
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The problem with the BankWest loan was it only tracked for a few years. As soon as that period was over, the increased the rates. Standard procedure for BW.

    With 8 years of banks pricing outside of the RBA, there is a very real demand for this type of product. The Auswide product isn't particularly cheap, but it is reasonable. There's probably more certainty in it over the long term however, as cheap loans have a habit of becoming expensive over time.
     
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  6. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    It was for 3 years from memory.
     
  7. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Auswide has brought this product out - it's at 3.99% (CR 4.01%) so not much of a premium placed on the 'certainty' of it. You can do better in terms of rate and IMHO it's more of a gimmick than anything.
     
  8. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    And no frills which won't appeal to some people. But if rates drop more and the banks don't pass it on, which was the case recently, it will soon be cheaper than others, particularly big 4. It's a punt really isn't it.
     
  9. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I don't know. It's certainly possible to get quite a bit cheaper, but at this point every lender pretty much has a history of finding ways to increase rates, primarily by holding RBA cuts and occasionally loading extra on the increases.

    For example ING is currently offering 3.79% for a similar loan. If you took the same product with them 12 months ago you got a market leading rate. Today however your loan would priced somewhere around 4.3% and they'll only reprice to around 4.1%.

    A great deal a year ago is now looking kind of average. Not so long ago a good discount was 0.7% of the standard variable, today it's around 1.3%. If lenders maintain their behavior in the years to come, banks might be handing out 2.0% discounts to new customers and making huge profits on the older clients.

    A product that guarantees a reasonable deal over time has a lot of benefit for someone with a 'set and forget' borrowing profile. I think the banks have trained the public (through their bad behavior) to want this sort of product.
     
  10. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Its a game of swings and runabouts really. Pictured a whole heap of bank execs gathered around a screen that displays the average rate across all mortgages at their respective banks and if it rises .1% they make x amount more profit so higher bonuses :). Reel them in and progressively increase the rate by various means and methods knowing the vast majority will set and forget.
     
  11. wobbycarly

    wobbycarly Well-Known Member

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