Homeloan & interest rates

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zeb

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Not sure in which forum to ask this, but here it is:

Would it be wise to get a fixed interest rate on my home loan at this stage? I'm thinking yes, but I'd like some serious opinions on whether it's the right thing to do, and for what term?
 
I think Tito only knows how to hike hike hike the rates so taking a bond on a fixed rate seems like the smart thing to do, I'm no financial guru so best wait for someone like Velenoso to answer you.
 
Taking out a fixed interest rate means you will pay a premium to the interest rate you will get at the moment, plus you won't benefit if the interest rates come down as expected in 2009
 
zeb said:
Not sure in which forum to ask this, but here it is:

Would it be wise to get a fixed interest rate on my home loan at this stage? I'm thinking yes, but I'd like some serious opinions on whether it's the right thing to do, and for what term?
Click to expand...

Depends how big your deposit is as well.

What you can do (don't be scared now), is add 5% to the interest rate the bank gives you, if you reckon u can still make the payments, then u r ok.
If u can't, that's where a big deposit comes in handy, u can use the extra money to tide you through.

If u can make it through the first 2 years, you'll be ok.

Personally, I wouldn't want a fixed rate.
 
If you are going to fix you will need to fix for longer than two years. the market has basically priced in close to 150bp worth of hikes and your fixed rate loan at this stage will reflect that. fixing from around 5years on and beyond might offer some value.
 
milomak said:
If you are going to fix you will need to fix for longer than two years. the market has basically priced in close to 150bp worth of hikes and your fixed rate loan at this stage will reflect that. fixing from around 5years on and beyond might offer some value.
Click to expand...

unless we see a 450bp drop as of 2010/11. Then you'll wish you hadn't!

My advice is don't. Rather make sure you can afford at least anothe 300bps hike.
 
Ask yourself: Why do banks offer fixed rates?
Is it to
a) lose money
b) make money
 
Moederloos said:
Ask yourself: Why do banks offer fixed rates?
Is it to
a) lose money
b) make money
Click to expand...

Banks make money on fixing rates on the initial rate they give you. They then become indifferent to rates increasing or decreasing. effectively say the fair price of fixing for five years is 15%. The bank will charge you 16%. Which is where they make their money. Whether rates go massively in your favour or against you becomes a non-issue for the banks as they will immediately hedge that position.

EDIT: In actual fact it would be better for the bank if rates went in your favour (ie up) because then your fixed rate loan has value to you. They can then entice you into another deal by using the value embedded in that fixed loan. Where they are able again to make more money off you.
 
Fixed rates are for suckers.

For the first half of the average two year period you pay more than you would have, and for the second half, you pay less.

If you really want to have some "buffer", simply leave it variable rate, and pay an "extra" 2% into the bond. Then you are "safe" from another 2% worth of hikes.

/here ends unca Moedie's financial update.
 
Best is to budget from the start for an increase of 5% (or whatever you decide on) and pay monthly as if the rate is already at that level.

As long as the rate is below your budgeted rate, you will be reducing the bond at high speed. When the rate does get to your budget rate, your minimum monthly payment will be less than you are paying because you did reduce the outstanding amount substantially.

Also budget to dump all bonuses, 13th cheques etc into the bond. It is amazing with how little effort one can repay a bond in 7 to 10 years.
 
Interest rates are sky-high atm. Not exactly the best of times to fix the interest rate.

I'd say let it float and accept the risk that the rates could go higher still.
 
IMHO, fixed rates are already 1.5%-2.5% above the prime rate. (already mentioned, think it was by moklet) That puts you at 16.5%.

It looks like a 1% increase on the 12th of June, so then the prime rate is at 16%, and then maybe a 0.50% increase in August. So I assume we will stagnate at around 16.5% (the same level as your fixed interest rate)

I really think we are going to see the effects of the increase from last year in the next CPI figures to be released in 3 weeks time.

Interest rates will starting coming down end of 2009 (with your fixed rate still at 16.5%)
So with every drop then, you will feel like it is climbing, as you can't save like the rest.
 
Dont fix - you will pay a premium to the current rate and wont benefit from the downward cycle either. It really isnt smart to fix a rate in most cases.
 
Only if it could have been at around 10-11%, but I assume they will charge an even higher premium then. (in anticipation for rates climbing)
 
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