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Mortgage war erupts as CBA, NAB, Westpac slash interest rates; CBA cuts 70bp from its five-year fixed mortgage rate to 4.99%
Topic Started: 23 Jul 2014, 01:45 PM (10,158 Views)
o2sd
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In recent weeks, the finance industry has gone from predicting several interest rate hikes in the next 12 months, to a potential rate reduction by Christmas ..... if you believe that interest rates are headed north – which, up until a few weeks ago, is what most lenders and economists had predicted. If rates decrease as Westpac recently forecast, however, you’ll be stuck paying more for your mortgage than you need to.

Soooooo .... up until a few weeks ago,the finance industry, lenders and economists were predicting rate rises, and then

Quote:
 
It’s making more than a few mortgage holders across Australia nervous. Some have responded to ever-changing sentiment by locking in some rate stability, with the appetite for fixed rate home loans reaching its highest level in five months, reports Mortgage Choice.


Fixed rate appetite reached it's highest in five months!

But ...
Quote:
 
“In order to understand what worries the RBA, you need to know that they have a ‘fight inflation first’ approach, and aim for a target range between 2% and 3%,” she explains.


The RBA is now worried.

So it would appear the new banking business model is:
1. Predict rates will rise.
2. Allow nervous borrowers to fix their mortgage rates.
3. Profit all the way to ZIRP.

Nice!
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Sydneyite
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o2sd
26 Jul 2014, 04:29 PM
So it would appear the new banking business model is:
1. Predict rates will rise.
2. Allow nervous borrowers to fix their mortgage rates.
3. Profit all the way to ZIRP.
Except for the fact that your whole premise is wrong. You seem to think that banks make more money on fixed rate loans if interest rates fall? This is incorrect - banks fund fixed rate loans such that *their* cost of funds is also fixed - usually via the use of interest rate swaps, where the risk of interest rate changes is transferred to another counter-party. Ie they remove the risk of interest rate movements on their side, either in their favour or against, and make their profit form the margin between cost of funds + admin and the rate charged to the borrower.

So bottom line is the bank mostly doesn't really care whether you borrow fixed or variable - they are just providing the products that the market demands.
Edited by Sydneyite, 26 Jul 2014, 06:17 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Mallard
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o2sd
26 Jul 2014, 04:29 PM

3. Profit all the way to ZIRP.
ZIRP. You are funny.
Collecting desperation.
Ex-Bp Golly April 2 2015. "I see with a slight overshoot -70% [fall in Sydney house prices] as being well within possibility"
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peter fraser
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zaph
25 Jul 2014, 09:35 AM
Peter,

Do you have many clients that use their homes as collateral to buy share portfolios?
No I don't but a close friend of mine does. The interest rate is much better and you won't get a margin call.
ramkraj79
26 Jul 2014, 11:52 AM
In recent weeks, the finance industry has gone from predicting several interest rate hikes in the next 12 months, to a potential rate reduction by Christmas.

Actually all the noises from banks in recent weeks has been pointing to lower rates.

Sorry but you have been misinformed.
Edited by peter fraser, 26 Jul 2014, 08:13 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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o2sd
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Sydneyite
26 Jul 2014, 06:16 PM
Except for the fact that your whole premise is wrong. You seem to think that banks make more money on fixed rate loans if interest rates fall? This is incorrect - banks fund fixed rate loans such that *their* cost of funds is also fixed - usually via the use of interest rate swaps, where the risk of interest rate changes is transferred to another counter-party. Ie they remove the risk of interest rate movements on their side, either in their favour or against, and make their profit form the margin between cost of funds + admin and the rate charged to the borrower.

So bottom line is the bank mostly doesn't really care whether you borrow fixed or variable - they are just providing the products that the market demands.
Well thank you for correcting me. So, if I understand what you are telling me, most people on variable rates don't pay down their principal faster when their variable mortgage rate goes down? That is, as soon as their rate drops, they immediately go into the bank to adjust their repayment schedule?

Mallard
26 Jul 2014, 07:30 PM
ZIRP. You are funny.
I do my best with difficult material.

Edited by o2sd, 27 Jul 2014, 12:09 AM.
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Ex BP Golly
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Mallard
26 Jul 2014, 07:30 PM
ZIRP. You are funny.
Out of cycle rate cuts to the lowest interest rates ever, if you fix for x years.

Of course we are headed for zirp.

You pretending otherwise is hilarious.
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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Mallard
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Ex BP Golly
27 Jul 2014, 02:33 AM
Out of cycle rate cuts to the lowest interest rates ever, if you fix for x years.

Of course we are headed for zirp.

You pretending otherwise is hilarious.
Time frame? If rates go up in the next couple of years will you accept that ZIRP won't happen? Or just kick the can down the road to some never arriving future point?

Don't the out of cycle cuts indicate that money markets are getting better and the banks cost of borrowing is decreasing? Surely that's economically positive if spreads are starting to fall?
Collecting desperation.
Ex-Bp Golly April 2 2015. "I see with a slight overshoot -70% [fall in Sydney house prices] as being well within possibility"
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stinkbug
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peter fraser
26 Jul 2014, 08:09 PM
No I don't but a close friend of mine does. The interest rate is much better and you won't get a margin call.
Using property as collateral is generally the best way to get lower rates. I'm starting down that path now.

Provided your cashflow is under control, it doesn't really matter what you use as security. When it comes to default, Australian law allows creditors to chase you to bankruptcy anyway, so might as well get the best deal you can.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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peter fraser
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stinkbug
27 Jul 2014, 03:38 AM
Using property as collateral is generally the best way to get lower rates. I'm starting down that path now.

Provided your cashflow is under control, it doesn't really matter what you use as security. When it comes to default, Australian law allows creditors to chase you to bankruptcy anyway, so might as well get the best deal you can.
Precisely. I get business owners asking for assistance with cashflow but their wives have insisted that they can't use the family home as security thinking that isolates the house. So they get funding at 8% instead of 5% and that higher cost is a destabilising factor in itself. The wives don't realise that a debt is a debt and creditors can still get the house, it just takes them a little longer.

Even when the house is in the wife's name solely it may not be completely isolated. It's complex but if the husband has contributed to the payments or the upkeep it's fair game for a lawyer with a good forensic accountant.

Ignorance and fear stop people from advancing themselves.
Any expressed market opinion is my own and is not to be taken as financial advice
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Ex BP Golly
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Mallard
27 Jul 2014, 02:55 AM
Time frame? If rates go up in the next couple of years will you accept that ZIRP won't happen? Or just kick the can down the road to some never arriving future point?

Don't the out of cycle cuts indicate that money markets are getting better and the banks cost of borrowing is decreasing? Surely that's economically positive if spreads are starting to fall?
Time frames?

One thing I've learnt is that I'm australia we really are different. With so much self interest riding on housing (so many pollies are up to their eyeballs in housing) we can stretch things out a very long way.

If we go zirp, or close to zirp, it will be the next 2 years is my best guess, which brings me to your other question.

If interest rates go up over the next few years, of course I will accept we are not going to zirp.

But as I have been saying we are heading to zirp for a couple of years, and saying rba has to drop interest rates further (but cant because housing infestors are dumb) I think I have a but of track record here.

And if you think lower interest rates are good, then you have no understanding if what is happening in our economy. There is a very good reason they are the lowest in a life time, and its got nothing to do with making you or infestors all trunkie.

Still, Id recommend you (and your bull mates) borrow acouple of more houses :to:
WHAT WOULD EDDIE DO? MAAAATE!
Share a cot with Milton?
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