That looked like an absurd term premium in a ZIRP world, but I just checked bond rates, and it lines up fairly well. Having said that, the bond curve is extremely inverted after 5 years. Seems like a fairly strong flight to safety in the long end of the curve.
Let me crunch some numbers.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
That looked like an absurd term premium in a ZIRP world, but I just checked bond rates, and it lines up fairly well. Having said that, the bond curve is extremely inverted after 5 years. Seems like a fairly strong flight to safety in the long end of the curve.
Let me crunch some numbers.
it's a free world but I wouldn't touch it. I've only met one person who took out a 7 year loan and I can tell you she wasn't happy.
What really hurts fixed loans is the exit cost. If you choose to sell at anytime during the term you will have to reimburse the bank for any economic cost they suffer as a result of that contract termination.
Funny thing is though, if they win when you break the contract, they keep the winnings.
Take risks - if you win you will become wealthy, if you lose you will become wise
it's a free world but I wouldn't touch it. I've only met one person who took out a 7 year loan and I can tell you she wasn't happy.
What really hurts fixed loans is the exit cost. If you choose to sell at anytime during the term you will have to reimburse the bank for any economic cost they suffer as a result of that contract termination.
Funny thing is though, if they win when you break the contract, they keep the winnings.
I took 5 year fixed a couple of times, as well as 3 year... won twice as rates rose, lost once. 7 or even 10 year would not bother me if the long term plan was sound and was not at risk of sudden liquidation.
Your right, the exit fees are a bugger, and not exactly even handed when you exit with rates going in your favor as I did once when we sold our IP... got some benefit, but not as much as they would have charged if the rates had gone the other way.
I am very envious of the American fixed rate mortgages .. 30 years at a low rate... wow.
it's a free world but I wouldn't touch it. I've only met one person who took out a 7 year loan and I can tell you she wasn't happy.
What really hurts fixed loans is the exit cost. If you choose to sell at anytime during the term you will have to reimburse the bank for any economic cost they suffer as a result of that contract termination.
Funny thing is though, if they win when you break the contract, they keep the winnings.
Sure, why take out fixed right now when the only way for variable is down.
Still, there is probably a floor on mortgage rates. Bank spreads over the short rate are around 250bps, I don't see that changing unless the government decides that banks are utilities and their return on equity should be regulated.
So once the variable hits 2.5%, it's probably not going anywhere from there, so there is no difference in rate, but there will probably still be a risk premia for longer term loans.
Speak when you are angry and you will make the best speech you will ever regret. Ambrose Bierce
Out of bonds and into stocks...for now. But it might boom again when they ZIRP and NIRP or QE4. Then comes FINANCIAL REPRESSION (forcing banks to buy bonds).
Bonds around the world headed for their steepest two-week loss in at least 26 years as President-elect Donald Trump sends inflation expectations surging.
The Bloomberg Barclays Global Aggregate Index has fallen 4 percent in the period through Thursday. It’s the biggest two-week rout in data going back to 1990. Federal Reserve Chair Janet Yellen contributed to the decline by saying Thursday an interest-rate hike could come “relatively soon.”
"We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump," said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania. "The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented."
Treasury 10-year note yields fell two basis points, or 0.02 percentage point, to 2.28 percent as of 9:34 a.m. in New York, according to Bloomberg Bond Trader data. The yield touched 2.34 percent, the highest since December, and has risen 0.5 percentage point since Nov. 4. The 2 percent security due in November 2026 was at 97 17/32.
“Trump is a game changer,” Park Sung-jin, the Seoul-based head of investment at Mirae Asset Securities Co., which oversees $7.6 billion. “I was bearish, but the current level is more than I expected.”
The selloff has gone fast enough that it’ll probably pause before yields press higher in 2017, Park said.
Read more: Don’t fight the Trump tidal wave
Yellen, addressing U.S. lawmakers Thursday, signaled the U.S. central bank is close to lifting interest rates as the economy continues to create jobs at a healthy clip and inflation inches higher.
The president-elect’s pledges include tax cuts and spending $500 billion or more over a decade on infrastructure, a combination that’s seen as spurring quicker growth and price gains in the world’s biggest economy. Trump has also blamed China and Mexico for American job losses and threatened punitive tariffs on imports, a move that may spur inflation.
The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.
Trump Impact
Ten-year Treasury notes will yield from 2.5 percent to 2.75 percent a year from now if Trump pushes through his proposed tax cuts and fiscal-spending policies, said Michael Kushma, chief investment officer for global fixed income at Morgan Stanley Investment Management.
A strengthening dollar and Trump policies that curb trade may hurt growth and limit the increase in yields, Kushma, who helps oversee $406 billion, said in an interview in Singapore.
“We’re still worried about rising U.S. yields,” he said. “In the short term, we think they’ve peaked. They could easily go up again.”
it's a free world but I wouldn't touch it. I've only met one person who took out a 7 year loan and I can tell you she wasn't happy.
What really hurts fixed loans is the exit cost. If you choose to sell at anytime during the term you will have to reimburse the bank for any economic cost they suffer as a result of that contract termination.
Funny thing is though, if they win when you break the contract, they keep the winnings.
I almost always fix loans and yes it costs me extra, but I don't care that much.
I am paying 8% on some and 4% on a variable loan, average would be at 6% and dropping.
Generally 5 years is where I fix, I would fix for 30 years but that is not available here in Australia.
On fixed term loans there is normally a provision to pay off an additional $10,000 per year.
At no penalty.
This is a good way to be in front on your loans.
No loans of course would be the preference.
The man with no loan would be at a minimum 4% better off per year than the man with a loan.
The move is rapid, but in terms of actual price, bond prices / implied yields were at a similar level just 12 months ago, and prices/yields were lower/higher just 18 months ago. So will be interesting to see if the current trend continues, or even if current levels are maintained.
For Aussie property bears, "denial", is not just a long river in North Africa.....
Just Wall Street getting that sweet commission. Since the price of money went to zero, funds go in and out of assets, whichever is the flavor of the month.
They then spend their commission on real assets: gold, real estate, art, hard currency.
This Trump boost is just another bubble to pile on. Another flavor of the month financial asset to bubble and pop.
The will keep doing this until the money runs dry (gets written off as bad debt in some counterparties' book).
We all know from the Japanese playbook that fiscal spending is as ineffective as monetary spending.
Japan, the industrial powerhouse, built roads, bridges, and airport to nowhere and only drove them deeper into deflation and deeper into debt (the highest in the world).
People may say demographics played a part, but that's also the Trump playbook. Anti-immigration policies will have the same effect on US demographics.
The end result of Trumponomics is an even higher debt to GDP.
Japan also had sporadic boosts in Nikkei in the last 20 years, only for it to pop in a downward trend. The US will be no different.
Hold on to hard assets: gold, silver, real estate, art, hard currency out of the banks IN SMALL DENOMINATIONS as we're learning (of anything above the government insured limit), directly owned shares in a trading account (not in indexes or ETFs) in solid companies.
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