Should I fix my mortgage rates?
Nov 25th 2014, 9:21 am
#16
Lost in BE Cyberspace
Joined: Oct 2005
Location: Hill overlooking the SE Melbourne suburbs
Posts: 16,622
Re: Should I fix my mortgage rates?
However:
Perhaps it is better to pay a bit too much and be comfortable and budgeted - perhaps in the region of 5-6pc than have to wait out time at 7-9pc.
it's never happened to me - the big cuts of 2008/9 came in just as we came off our fixed rate.
Nov 26th 2014, 1:53 am
#17
BE Enthusiast
Joined: Feb 2014
Posts: 592
Re: Should I fix my mortgage rates?
Commonwealth - the rates for ING Direct fixed 3 & 5 Years is a comparison rate of 5.11% and 5.13 % respectively. Their rates are normal low.
There are some deals out there that can better this and one deal that would see you paying around 4.75% pa comparison rate Fixed over 3 years with their variable rate at 4.70% comparison rate with no fees for the life of the loan.
As stated you need to look around and anything around the 5% mark comparison rate is quite good at the moment. If you need help just PM.
There are some deals out there that can better this and one deal that would see you paying around 4.75% pa comparison rate Fixed over 3 years with their variable rate at 4.70% comparison rate with no fees for the life of the loan.
As stated you need to look around and anything around the 5% mark comparison rate is quite good at the moment. If you need help just PM.
Nov 27th 2014, 9:51 am
#18
Daffyd Duck
Thread Starter
Joined: Jul 2008
Location: Paradise
Posts: 5,636
Re: Should I fix my mortgage rates?
I don't trust comparison rates when comparing fixed rates.
They are useful for variable rates, but it can be distorted when using fixed rates.
They are useful for variable rates, but it can be distorted when using fixed rates.
Dec 6th 2014, 2:23 am
#19
Forum Regular
Joined: Jan 2010
Posts: 188
Re: Should I fix my mortgage rates?
From what I understand, when the banks normally fund their fixed rate portfolio, they essentially lock in the net interest margin (NIM) regardless of future interest rate movements.
e.g. in order to give you a 5-year loan at 5% (their Asset side), the bank will obtain funding and lock in their cost of funds at 3% fixed for 5 years from the wholesale debt market (their Liability side). This is assuming they do their balance sheet risk management in the usual way (through match-funding or interest rate swaps).
So no matter what happens to the actual variable cost of funds in the future, the bank's NIM from your loan will always be ~2%.
I don't think it's entirely accurate to think the bank is hoping to beat you by offering fixed rate loans.
e.g. in order to give you a 5-year loan at 5% (their Asset side), the bank will obtain funding and lock in their cost of funds at 3% fixed for 5 years from the wholesale debt market (their Liability side). This is assuming they do their balance sheet risk management in the usual way (through match-funding or interest rate swaps).
So no matter what happens to the actual variable cost of funds in the future, the bank's NIM from your loan will always be ~2%.
I don't think it's entirely accurate to think the bank is hoping to beat you by offering fixed rate loans.
Page 222 gives a breakdown of funding under liquidity risk.Usually they operate on around 60 % funding from deposits and the rest from other sources,wholesale funding being the largest source.They are bang on 60-40 last year.They also discuss term to maturity but other notes need to be read to get the full picture,it isn't worth reading them unless you are a major investor.They are telling the truth,if they aren't then nobody has protection against fraud and they quickly go out of business.
The report can be read on the www (world wide whiners).Takes about 2 mins and you'll know more about banks than 99% of people just by spending that 2 mins of productive time reading it.
Shortly WBC is 200 yrs old,reconstructing the shares means that $1 invested in 1817 is around $1.3 million now,without reinvesting dividends.
My starting point was around 1999 @$11 ish a share.Using the DRP means every $11 is now around $70-75,the good old time is money equation.
Geordie downunder
Dec 6th 2014, 2:42 am
#20
Forum Regular
Joined: Jan 2010
Posts: 188
Re: Should I fix my mortgage rates?
Yes,westpac gives the easiest to understand breakdown in the annual report.Page 90 in general performance discussion gives the NIM breakdown,which is 1.9% plus the benefit of interest not paid on current accounts which is .19% so NIM of 2.09%.
Page 222 gives a breakdown of funding under liquidity risk.Usually they operate on around 60 % funding from deposits and the rest from other sources,wholesale funding being the largest source.They are bang on 60-40 last year.They also discuss term to maturity but other notes need to be read to get the full picture,it isn't worth reading them unless you are a major investor.They are telling the truth,if they aren't then nobody has protection against fraud and they quickly go out of business.
The report can be read on the www (world wide whiners).Takes about 2 mins and you'll know more about banks than 99% of people just by spending that 2 mins of productive time reading it.
Shortly WBC is 200 yrs old,reconstructing the shares means that $1 invested in 1817 is around $1.3 million now,without reinvesting dividends.
My starting point was around 1999 @$11 ish a share.Using the DRP means every $11 is now around $70-75,the good old time is money equation.
Geordie downunder
Page 222 gives a breakdown of funding under liquidity risk.Usually they operate on around 60 % funding from deposits and the rest from other sources,wholesale funding being the largest source.They are bang on 60-40 last year.They also discuss term to maturity but other notes need to be read to get the full picture,it isn't worth reading them unless you are a major investor.They are telling the truth,if they aren't then nobody has protection against fraud and they quickly go out of business.
The report can be read on the www (world wide whiners).Takes about 2 mins and you'll know more about banks than 99% of people just by spending that 2 mins of productive time reading it.
Shortly WBC is 200 yrs old,reconstructing the shares means that $1 invested in 1817 is around $1.3 million now,without reinvesting dividends.
My starting point was around 1999 @$11 ish a share.Using the DRP means every $11 is now around $70-75,the good old time is money equation.
Geordie downunder
If they have $100 billion in US$ (they don't,concentration of risk can be good and bad) then a move from parity to A$1 = US$ 80 cents means they have to come up with $125Billion to pay that money back.a loss of A$25 billion,it may send them bust ,if it didn't they'd be very sick for a while.
So they do impose limitations on themselves and APRA and RBA etc get at least weekly reports from the bank internal risk management committee.
Geordie downunder
Dec 6th 2014, 4:32 am
#21
Daffyd Duck
Thread Starter
Joined: Jul 2008
Location: Paradise
Posts: 5,636
Re: Should I fix my mortgage rates?
thank god i havent fixed!
5-year swap rates (the basis of banks' cost of funds) have dropped 0.25% because of the weak GDP numbers!
the market is betting at least a 25bps drop next year! see this graph: http://www.asx.com.au/data/trt/ib_ex...urve_graph.pdf
and 2-year government bond yields now below the RBA cash rate of 2.50%!!!
see Australian Government Bonds - Bloomberg
the markets are pricing in another cut!
5-year swap rates (the basis of banks' cost of funds) have dropped 0.25% because of the weak GDP numbers!
the market is betting at least a 25bps drop next year! see this graph: http://www.asx.com.au/data/trt/ib_ex...urve_graph.pdf
and 2-year government bond yields now below the RBA cash rate of 2.50%!!!
see Australian Government Bonds - Bloomberg
the markets are pricing in another cut!
Dec 6th 2014, 5:09 am
#22
Lost in BE Cyberspace
Joined: Dec 2010
Posts: 14,040
Re: Should I fix my mortgage rates?
thank god i havent fixed!
5-year swap rates (the basis of banks' cost of funds) have dropped 0.25% because of the weak GDP numbers!
the market is betting at least a 25bps drop next year! see this graph: http://www.asx.com.au/data/trt/ib_ex...urve_graph.pdf
and 2-year government bond yields now below the RBA cash rate of 2.50%!!!
see Australian Government Bonds - Bloomberg
the markets are pricing in another cut!
5-year swap rates (the basis of banks' cost of funds) have dropped 0.25% because of the weak GDP numbers!
the market is betting at least a 25bps drop next year! see this graph: http://www.asx.com.au/data/trt/ib_ex...urve_graph.pdf
and 2-year government bond yields now below the RBA cash rate of 2.50%!!!
see Australian Government Bonds - Bloomberg
the markets are pricing in another cut!
Dec 7th 2014, 1:35 am
#23
BE Enthusiast
Joined: Feb 2014
Posts: 592
Re: Should I fix my mortgage rates?
If only we had a crystal ball!! Work on what is known and make decision based on that! :-)
