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  1. #61
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    Not unless you're locked in fix for as long as possible and own puts at the front end of the interest rate curve!

    Took 7 years of patience to pull this one off

  2. #62
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    Quote Originally Posted by smpl View Post
    Not unless you're locked in fix for as long as possible and own puts at the front end of the interest rate curve!

    Took 7 years of patience to pull this one off
    It depends on a few things

    1) First up the we may be looking at a 05 to a 07 event (Fed have been hinting at this) - See chart attached

    Where the Interest rate increase happens rapidly over two years following a regular trend up

    As to if the banks would still Honor the low fixed rate when it raises so quickly I'm not sure

    2) Higher rates mean cooling market conditions and if prices slide in a big way then banks may start calling in the loans at low rates

    As their stability gets tested it may get messy or not.. honestly don't know how this would play out

    Disc: Don't own a home or have any hope so most likely bias (Doesn't mean I don't follow current events)
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    Last edited by NeverQuestion; 19-12-2016 at 01:05 PM.

  3. #63
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    NeverQ in regards "As to if the banks would still Honor the low fixed rate when it raises so quickly I'm not sure"
    When customers take out a fixed rate loan with the bank . For arguments sake lets say 4.8 % for a five year term . The bank effectively parcels all the mortgages up for the day/week and goes into the wholesale market and hedges this risk up in the swap market . So todays 5 year swap rate is 3.05 % , they can lock it in there ..... You have a contract they have to honour ......
    So that is why when you break a fixed mortgage when rates have gone down the bank will ask for an early repayment fee as they have hedged the risk and will surfer a loss when you cancel your contract with them .
    So the bank is not necessarily going to lose when rates go up if everyone is fixed at lower levels ( unless they have their hedging wrong ) .Any problem would occur in 2 /3/5 years time when the lower fixed rates start rolling off and you then have to take the prevailing floating/fixed rate which might be circa 7 % , that would be a pinch on a lot of budgets ......

  4. #64
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    Quote Originally Posted by NeverQuestion View Post
    We are all in for a world of pain
    Seems a bit dramatic. Fed will raise 4 times if this is at .25 of 1% then a whole 1% over the year. On a $1mill mortgage $10,000 a year extra interest on a $500,000 mortgage $5,000 extra a year or $100 a week. An average mortgage is probably a lot less than this.
    If you have borrowed too much the monetary system has your back. Rising oil prices might spur on the long awaited inflation that will take care of your debt. I would guess a 1% interest rate rise will be way behind inflation, especially if you include housing costs.

  5. #65
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    2) Higher rates mean cooling market conditions and if prices slide in a big way then banks may start calling in the loans at low rates
    Not unless said loans are in arrears! Confidence is everything in banking and a bank that "called in" a performing housing loan might as well shut up shop, permanently!

  6. #66
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    Quote Originally Posted by stoploss View Post
    NeverQ in regards "As to if the banks would still Honor the low fixed rate when it raises so quickly I'm not sure"
    When customers take out a fixed rate loan with the bank . For arguments sake lets say 4.8 % for a five year term . The bank effectively parcels all the mortgages up for the day/week and goes into the wholesale market and hedges this risk up in the swap market . So todays 5 year swap rate is 3.05 % , they can lock it in there ..... You have a contract they have to honour ......
    So that is why when you break a fixed mortgage when rates have gone down the bank will ask for an early repayment fee as they have hedged the risk and will surfer a loss when you cancel your contract with them .
    So the bank is not necessarily going to lose when rates go up if everyone is fixed at lower levels ( unless they have their hedging wrong ) .Any problem would occur in 2 /3/5 years time when the lower fixed rates start rolling off and you then have to take the prevailing floating/fixed rate which might be circa 7 % , that would be a pinch on a lot of budgets ......
    Happy to be wrong! Just find it odd that we are at record low interest rate levels and if they climb quickly as they have in the past just how banks can keep that contract obligation without taking a massive hit

  7. #67
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    Quote Originally Posted by NeverQuestion View Post
    Happy to be wrong! Just find it odd that we are at record low interest rate levels and if they climb quickly as they have in the past just how banks can keep that contract obligation without taking a massive hit
    NQ , I explained in my post they can hedge it in the wholesale market ... don't panic they don't make a billion dollars a year odd by losing money to the average punter on their mortgage .....

  8. #68
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    Interest rates are likely to experience upward pressure but despite the yearly bullish engulfing candle being a worthwhile peice of information the world as a whole remains tender and any hiccough from say China or Europe could easily cause a return to lower yields. Obviously Trumps stated fiscal expansionist policies are a big factor in this turnaround of trends but they have yet to be actually implemented and may not eventuate exactly as the market appears to be anticipating.
    In NZ I dont expect the OCR to be raised much if at all in 2017. The first half is too soon and the second half is the election which will induce inertia, i.e. no change.
    Bondholders should be wary if they are traders, but I personally wouldnt jump ship just yet especially if they are held as part of a full portfolio with laddered duration and equity exposure.

    (edit - I just realised this is in the Property forum, which my comments are not specifically related to)
    Last edited by peat; 20-12-2016 at 08:26 AM.

  9. #69
    Speedy Az winner69's Avatar
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    Wheeler is the worst RB Governor we have ever had - we'll pay for it in a couple of years

    He has serious personal issues

    http://www.sharechat.co.nz/article/1...-economisthtml
    “ At the top of every bubble, everyone is convinced it's not yet a bubble.”

  10. #70
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    Quote Originally Posted by winner69 View Post
    Wheeler is the worst RB Governor we have ever had - we'll pay for it in a couple of years

    He has serious personal issues

    http://www.sharechat.co.nz/article/1...-economisthtml
    What is Wheeler doing that reserve bank governors haven't been doing for the last 20 to 30 years? Sounds like Topliss just annoyed Wheeler made him look clueless. I would have thought reserve bank governors and economists learnt the same thing at school. It is not a science it is a study of human behavior.

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