They say bank almost never lose, hence they're confident rate won't rise over next 5 years (which is impossible) ???
Or just because those deals are packaged from high-yield investment specialist driving 80k car ..
If Big Banks Offer 5 Yr Fixed @ 3.7x%, Does That Mean No Rate Rise ?
dcep on 15/03/2018 - 13:42
Comments
Banks would be offering the fixed price loans based on a number of factors, but would be minimising their risk exposure by factoring in their own fixed price costs of funding these.
For example, in very simplistic terms, if they offer an investment product that pays, say, 3% for 5 years, they have minimal exposure. Same if they borrow wholesale funds at a lower rate for a fixed term.
It doesn't matter to banks (much) what the rates are, as long as there is a % margin in it for their profits.
Their offer does not correlate with any indication of what the market-based interest rates will do over that term.questions remains, what happens to the wholesale funds seller that fixed 3% for banks when interest rates goes up, does that affect him at all ?
Not really. The wholesale market includes the leveraging on large value, long term borrowings. Their primary risk is in not being able to on-lend all of the larger $$ at a rate that is profitable.
Whilst there may be some risk exposure in futures and position taking closer to RBA announcements, most positions are well covered.
Fixed means fixed - no rate rise or drop for that period.
hence they're confident rate won't rise over next 5 years (which is impossible)
Banks don't guess anything, they don't predict future market rates, they just take their wholesale funding rate from the current yield curves and offer products based on those curves. For exampe, if you took up this advertised fix 3.7% rate then the bank would match your loan on their funding side with a fixed 3.1% loan from the wholesale market. They make their 0.6% NIM no with no fortune-telling required
i see,
so the old saying of you can't beat the banks on going fixed are just bollocks then
Yeah, pretty much. But I guess you could say 'beat the market'
Make sure you read all the fine print. Some of the fixed deals don't allow you to make extra repayments to drop the amount owing. Meaning you can't drop all your income on the homeloan and then withdraw against the equity. Not being able to do this could cost you more in the long run.
Thought you meant the TD rate there for a moment, was searching everywhere. Real OzBers are cash positive like Buffet.
The banks have economists, risk modellers, financial modellers and many other consulting parties working in concert to make a best guess, it doesn't offer any guarantee that thats how the market will go.
A good example were the rising interest rates and high fixed rates leading up to the GFC. A colleague of mine signed up to a 5 year fixed term @ 9% saying how he was going to save thousands in interest, 3 months later the GFC hit, months later than interest rates plummeted.
That must have created Tsunami in his back pocket? Was he a surfer?
If you get a fixed rate loan, the rate is … wait for it … fixed for the life of the fixed rate period.
Unless you really want to know about the finer points of the way banks fund their balance sheets, that's all you need to know.
You still haven't told us what bank is doing this, or is it hypothetical?
westpac deal that posted earlier,
also some guy in forum fixed with bankwest signed at 3.78 but increased to 3.98 on settlement
edit: Dupe post
Summarise the above -
If you sign up for a fixed rate loan, then it is fixed at the agreed rate for the period of the loan.
What the bank fund such loans at is part and parcel of a much (much) larger interest rate portfolio.
I could go on with 100 lines of comments about how banks fix their rates but it is really is inconsequential to the discussion.
Yes, it is fixed for 5 years. Are they doing it, because that is a really good rate?