tag:blogger.com,1999:blog-8511915656857366006.post5485786060274343432..comments2023-08-21T14:18:29.100+02:00Comments on Cheap as chips: Fixing our interest rate - a retrospectivetehnyithttp://www.blogger.com/profile/05019875106808614610noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-8511915656857366006.post-30382469614221260702008-12-08T09:12:00.000+01:002008-12-08T09:12:00.000+01:00I work in the finance industry and can offer the f...I work in the finance industry and can offer the following advice;<BR/><BR/>Generally, fixed interest rates end up costing you more, on average. Of course, you can be lucky and lock in a low rate in the beginning of a period of successive rate rises.<BR/><BR/>The way to think about it is practically everthing a bank offers these days is driven by profit, if a bank could not profit from offering a fixed rate, than it would not do so. (notice how the fixed rate is always higher than the variable rate)<BR/><BR/>Usually its best to go for a variable rate unless you would not be able to cope with unforseen increases in the interst rate.<BR/><BR/>ThanksAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-73866085521417966822008-11-25T22:43:00.000+01:002008-11-25T22:43:00.000+01:00Jaeneen,Our bank certainly did not provide any goo...Jaeneen,<BR/><BR/>Our bank certainly did not provide any good advice either. Certainly, in hindsight, the four year loan term that we are on is definitely too long. Perhaps we should have gone for a one or two year term.<BR/><BR/>I tend to believe that the banks wants to lock their customers in on the longer term (4 year or more) as reflected by their lower interested rate for those terms.<BR/><BR/>Most people tend to believe that the banks are there to service the the general public. This is wrong as I believe the banks are there to maximise their profit.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-10057080074928510432008-11-25T13:02:00.000+01:002008-11-25T13:02:00.000+01:00We had this very same discussion with a customer s...We had this very same discussion with a customer some time ago. We had placed him in a loan with a non-bank lender. At the time it was as competitive as any loan on the market. Then the sub-prime issues developed and the cost of funding non-bank loans increased more than the regulated banks. Of course this meant we lost credability with the customer. <BR/><BR/>Back in February he told us he had approached a main-stream bank about a fixed rate loan. We were concerned because we felt strongly that rates were sure to come down given developments in finacial markets. However, as I said we no longer had credibility and our customer signed a 5 year fixed rate contract at 9.10 per cent! The loan he left now has a rate of 7.38 per cent with further falls to come I'm sure (it was 9.13 when he fixed with the new bank).<BR/><BR/>Apart from loosing a customer, we were very disapointed with the actions of the bank that refinanced him. Is obvious they were aware of the potential for rates to fall and at the very least, a 5 year term was too long. <BR/><BR/>We experienced something similar with another bank. A customer advised us that they had received a letter offering them fixed rate loans of 2 and 3 years around 8.50%. This letter went out to customers only weeks before rates began to fall. Soon thereafter, 2 and 3 year fixed rates fell to just above 7.00 per cent.Jaeneen Cunninghamhttps://www.blogger.com/profile/15513521663489397219noreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-58695879382482304172008-11-17T02:40:00.000+01:002008-11-17T02:40:00.000+01:00Bewo, thanks for stopping by. That sounds like a g...Bewo, thanks for stopping by. <BR/><BR/>That sounds like a good strategy. We are doing something similar with our fixed interested loan. However, there is a fixed limit, $5000, on how much more we can contribute to the loan.<BR/><BR/>Just be aware of such charges as the penalty for exceeding the limit are quite high.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-76810361730591016592008-11-17T00:33:00.000+01:002008-11-17T00:33:00.000+01:00My strategy to minimise the interest paid even tho...My strategy to minimise the interest paid even though our fixed rate is now higher than the variable is the following. Change both loans to min repayment and then make extra repayments against fixed loan up to the most we can afford. Also note that offset accounts do not offset against fixed rate loans. We are thinking about moving most of the surplus funds from our offset accounts into the fixed loan until it matures therefore making those funds offset a higher rate loan.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-78825224407769796382008-11-12T10:25:00.000+01:002008-11-12T10:25:00.000+01:00Thanks for some of the good insight on one wayt to...Thanks for some of the good insight on one wayt to go about deciding when to renegotiate.<BR/><BR/>I am with you on the 5%. We are probably not going to seriously look at breaking the current loan until the interest reaches about 5.5% to 6%.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8511915656857366006.post-27095295057714053852008-11-12T00:04:00.000+01:002008-11-12T00:04:00.000+01:00I assume this is a problem for thousands of mortga...I assume this is a problem for thousands of mortgagees around Australia and the world at the moment. 12 - 18 months ago rates were increasing and squeezing everyones budgets. Many people including myself fixed some or all of their home loan. I was lucky that i locked in only half our loan and only for 12 months. I did this after reading a Ross Gittens article on smh.com.au which noted that while rates were increasing, at 8%, they were still 3% or more above the rate considered neutral. Rates above 5% or so are considered tight monetary policy as they restrict economic growth (read inflation). Rates lower than 5% are considered expansionary monetary policy which stimulate the economy. Expansionary rates are needed in times like this so some economists are predicting rates below 4% early next year in Australia. <BR/>I guess what I am saying is only fix your rates when they are 5% or below and look like rising. Most people that fixed in the last 12 months locked in high 7 or low 8% rates for at least 12 months but most likely 2 - 4 years. This will prove costly unless you refinance or break your fixed portion. While breaking the fixed portion comes at a cost, of up to $2000 depending on the loan, it is most likely worth changing in the long run.Ben Woodhttps://www.blogger.com/profile/12699479710013088555noreply@blogger.com