Fixed rate home loans may be on the rise (zz)

wil

Headline inflation has fallen to 2.5% over the year to March 09.

With the economy slowing and both the Prime Minister and Governor of the Reserve Bank finally using the “R word” this week what impact will the latest inflation figures have?

Historically we have seen that when inflation is high so too are interest rates and in general when rates are low so too is inflation. Cash rate movements are the RBA’s prime weapon of influence over inflation, so why when all major economies where headed to recession last year did the RBA continue to raise interest rates at a time when most economies were slashing theirs?


Midway through 2009 Australia faced a situation where inflation was very high, at 4.9% and most economies around the world were heading for recession thanks to toxic debt and global equity market meltdowns. This 4.9% CPI figure saw inflation well outside of the RBA’s target rate (2% to 3%) and as a result the RBA lifted the cash rate. The fallout from the global financial crisis quickly became very apparent and as a result the economy slowed and headed toward recession and the RBA begun cutting rates extremely aggressively over the coming months. Interestingly, at a time when the RBA would traditionally be looking to lift rates, they cut and luckily, inflation has now fallen back within the preferred range at 2.5%.

Although the RBA has cut the cash rate aggressively over this time there has been a number of instances where the banks have not passed on the full cuts. This was most apparent following this month’s RBA board meeting where they decided to cut the official cash rate by 0.25%. Despite this drop in the cash rate the greatest cut to interest rates passed on amongst the big four banks was just 0.10%. This begs the question how much lower will rates go and what future cuts will home owners receive (if any)?

The Sydney Futures Exchange (SFE) yield curve for cash rate futures suggested this week that the cash rate would fall to a low of approximately 2.4% during September and October this year. This represents an expectation of a further 60 basis points cut from the current cash rate. Although cuts are anticipated the yield curve does suggests that the cycle of relaxing interest rates is coming near the end.


Given this, many mortgage holders are now considering if they should be moving from a variable interest rate home loan to a fixed rate home loan. In anticipation of the move away from variable to fixed loans a number of banks lifted their fixed rates earlier this week. In most instances either the National Australia Bank or St George have the cheapest fixed rate mortgage products. This result is a little surprising given that of the big four banks, the NAB was the only one which did not pass on any of the most recent interest rate cut.


Historically variable home loans have dominated the market in fact, prior to 1995 fixed rate home loans consistently accounted for less than 5% of the total home loan market. Between January 1992 and February 2009, 65% of new loan commitments have been for variable loans with just 35% for fixed rates. We anticipate that over the remainder of 2009, we will begin to see many choose fixed rate loans rather than variable loans. There are a number of reasons why we believe this will occur including: the anticipation (as highlighted by the SFE yield curve) that interest rates will begin to rise again late in 09 and early in 10, the global financial crisis is likely to make many, more cautious and as such these people will seek certainty in costs.


Obviously home owners need to determine which type of home loan product suits their individual needs whilst also taking into account the costs which may be applicable if they break a fixed rate loan in the future. Historically many have favoured variable loans but in this time of global economic uncertainty it may be a better option to pay slightly greater amounts of interest in order to ensure that home loan repayments remain manageable.

wil

只是转载哈，我自己也都在观望，不知何时fix。。。。。。。。。。。

realfenglin

似乎已经在上升了吧。
大家都准备FIX吗？

DY668

It is a very hard choice, as no one know when the Global Financial Crisis is over. Also, banks is smart, its 5 years fixed rate is almost 100 points higher than current variable rate (after discount) thus it is not so attractive in near term. I would wait for 3-5 months.