Interest Rates - Where to next?
Selfishly thinking of my own situation, that being that I have recently purchased my first house, I would like to know other people's opinions on the interest rate for the next 5 years.
I know it's impossible to know what will happen BUT still i'd like to see what others think will happen
Some think we are due for a rates explosion (perhaps double digit rates) in 2+ years due to huge govt spending now to prop up the economy.
Others think the economy is in such poor shape that rates will have to remain low for a long time yet to help the economy and any major increase in rates will kill our exports hurting us even more.
My personal opinion is that rates will rise sooner than people expect - maybe in the next month or two and i am tending to believe they could go higher quickly.
This being the case i'm thinking of fixing half of the mortgage for 5 years @ 7.95% and the other half for 2 years @ 6.09% - therefore if rates explode i will be protected somewhat, however if rates stay low then i can still reap some of the rewards.....
How to go bust in a rational manner
Quote:
Originally Posted by
foxysfolkfaced23
Selfishly thinking of my own situation, that being that I have recently purchased my first house, I would like to know other people's opinions on the interest rate for the next 5 years.
I know it's impossible to know what will happen BUT still i'd like to see what others think will happen
Some think we are due for a rates explosion (perhaps double digit rates) in 2+ years due to huge govt spending now to prop up the economy.
Others think the economy is in such poor shape that rates will have to remain low for a long time yet to help the economy and any major increase in rates will kill our exports hurting us even more.
My personal opinion is that rates will rise sooner than people expect - maybe in the next month or two and i am tending to believe they could go higher quickly.
This being the case i'm thinking of fixing half of the mortgage for 5 years @ 7.95% and the other half for 2 years @ 6.09% - therefore if rates explode i will be protected somewhat, however if rates stay low then i can still reap some of the rewards.....
It's always a dilemma.
My 2cents.
I think inflation is going to be an 'issue' in 18mths - 2 yrs. (another commodity boom, soggy currencies due to 'quantitative easing' yudda yudda yudda.
So interest rates will go up -- and note that the longer rates from banks are quite a bit higher than the 18 mth & 2yrs rates so the banks are thinking along the same lines.
But it's all crystal ball so … I've just turned over two mortgages and set them for 18 mths. This may sound insane if I really believe inflation is going to take off at the end of it - but here's the reasoning;
If I can grab the best rates going, pay down as much as possible in that period AND inflation takes off - then it's a winning situation since high inflation reduces the real value of the 'rump' of the debt faster AND I've got a smaller residual 'rump' - so paying higher rates on it is not as painful as it could be.
I hope it helps to see what 'others' are doing and their reasoning for their actions.
From an old FT article >>
In 1898, Swedish economist Knut Wicksell argued that there existed a “natural” rate of interest that balanced the supply and demand of credit, assuring the appropriate allocation of saving and investment. Should market interest rates remain below the natural rate for an extended period, investors will borrow excessively, allocating capital into less productive investments and ultimately into purely speculative ones.
This is what the economy faces today after years of meagre borrowing costs. Policymakers have created a Wicksellian dilemma where investment spurred by low interest rates is driving economic growth, but these inefficient investments support growth at the expense of lower productivity in the economy. In recent years, this investment has flowed into housing, commercial real estate and equities, driving asset prices higher, exactly the goal of the Central Banks in the wake of the financial crisis. But as the recovery in real estate and equities matures, a darker side of this imbalance between natural and market rates is beginning to emerge. Many investments today using artificially cheap capital are not increasing productivity — they are being made because money is cheap and the profit motive is strong.
The harsh reality is extended periods of malinvestment result in declining productivity growth, lower potential output and slower increases in living standards. A failure to normalise market interest rates soon will result in more capital ploughed into investments that are less productive and more speculative. As productivity declines, long-term growth will be stunted. Eventually, inflationary pressures will build, forcing market interest rates to rise. The longer market rates remain below the natural rate the greater the purge will be once higher rates induce a recession, causing a sharp rise in defaults among malinvestments made during the period of cheap credit.