Interest Rates - Where to next?

[NeverQuestion]

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

[stoploss]

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 .....

[JBmurc]

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.

[kiora]

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.

Inc in inflation & IR slower than everyone anticipating https://www.ecb.europa.eu/press/key/...160615.en.html
What is the natural rate? Surely linked to inflation & unemployment which don't appear to be in a bubble.

[JBmurc]

Inc in inflation & IR slower than everyone anticipating https://www.ecb.europa.eu/press/key/...160615.en.html
What is the natural rate? Surely linked to inflation & unemployment which don't appear to be in a bubble.

I guess the natural rate is what keeps both savers and leaders balanced ....and as the NZD is such a small economy at the bottom of the world ..it must have higher debt(bond/treasury) rates to attract foreign capital >>than say US -EURO rates

“NZ banks use a serving rate higher than the current rates shown on their website and this determines the amount a person can borrow. They vary from bank to bank and most are at 7.5%. ANZ has just reduce this to 7.3%


Lowest rates in 5000yrs !!!!
https://www.businessinsider.com.au/c...15-9?r=US&IR=T


Energy is well known core to inflation >>>IMHO oil will spike $100+ before 2020

While the Mainstream media continues to put out hype that technology will bring on abundant energy supplies for the foreseeable future, the global oil and gas industry is actually cannibalizing itself just to stay alive. Increased finance costs, falling capital expenditures and the downgrade of oil reserves are the factors, like flesh-eating bacteria, that are decimating the once great oil and gas industry.

This is all due to the falling EROI – Energy Returned On Investment in oil and gas industry. Unfortunately, most of the public and energy analysts still don’t understand how the Falling EROI is gutting the entire system. They don’t see it because the world has become so complex, they are unable to connect-the-dots. However, if we look past all the over-specialized data and analysis, we can see how bad things are getting in the global oil and gas industry.

https://srsroccoreport.com/warning-t...to-stay-alive/

[Tomtom]

Not worried about the headline interest rates too much for the last few years.

I have an Asian friend who used to be a mortgage broker and he let me in on a little trick within Asian property investors (Not involving a Nigerian prince type scenario!)

Although banks offer you refinancing money with a “promise” to stay with the bank that “promise” isn’t really profitable to enforce. If you tell the bank complaint line you’ll take them to the ombudsman about the refinancing money the bank won’t reclaim it if less than $4000 because the cost of going through the ombudsman process is greater than $4000.

So for the last few years I’ve been switching banks at 1 year intervals and keeping the refinancing money (as it’s not profitable to enforce the contract.) It’s worked out well really well. In fact hilariously one New Zealand banks mortgage manager has given me refinancing money twice! I guess mortgage managers are probably treated very poorly by banks (they certainly work all hours) and couldn’t care less as long as they hit bonus sales figures?

I do not know if this will last much longer however. Just signed on a rental with ANZ who offered me only 0.80% (as % of loan value, that seems to be the way mortgage managers work it out) refinancing money whereas the last few years I managed to get 1%. Hopefully it benefits a few of you before banks get wise and stop giving refinancing money.

BTW always ask for an Asian mortgage managers as well. I tend to find they tend to know how the game is played regarding getting the lowest rates and most cash. Even within the same bank you can get two completely different offers by speaking to different mortgage managers.

[JBmurc]

Not worried about the headline interest rates too much for the last few years.

I have an Asian friend who used to be a mortgage broker and he let me in on a little trick within Asian property investors (Not involving a Nigerian prince type scenario!)

Although banks offer you refinancing money with a “promise” to stay with the bank that “promise” isn’t really profitable to enforce. If you tell the bank complaint line you’ll take them to the ombudsman about the refinancing money the bank won’t reclaim it if less than $4000 because the cost of going through the ombudsman process is greater than $4000.

So for the last few years I’ve been switching banks at 1 year intervals and keeping the refinancing money (as it’s not profitable to enforce the contract.) It’s worked out well really well. In fact hilariously one New Zealand banks mortgage manager has given me refinancing money twice! I guess mortgage managers are probably treated very poorly by banks (they certainly work all hours) and couldn’t care less as long as they hit bonus sales figures?

I do not know if this will last much longer however. Just signed on a rental with ANZ who offered me only 0.80% (as % of loan value, that seems to be the way mortgage managers work it out) refinancing money whereas the last few years I managed to get 1%. Hopefully it benefits a few of you before banks get wise and stop giving refinancing money.

BTW always ask for an Asian mortgage managers as well. I tend to find they tend to know how the game is played regarding getting the lowest rates and most cash. Even within the same bank you can get two completely different offers by speaking to different mortgage managers.

Right yes I took a floating loan on a spec Property trade that I sold only months after taking it out with Westpac got like 2k cash was fully expecting they would claim it back (as i signed doc stating I had to).....but nothing ....I did take out a much smaller 1yr fixed loan so probe not stressed about it ....

As to switching banks ....for me with company loans using Family trust property as security I don't get much change out of $1500 in legal costs .... so not worth the hassle >> different story if I had large debts I guess ...but good luck to jumping banks ...personal a good day trade can make me as much

[Investor]

Where are the ethics in repeatedly breaching a contract for personal gain? If you weren't happy with the initial deal or intended to refinance at a later date you shouldn't of entered into a contract whereby you can not refinance/sell without repaying the cash contribution offer. It is a great 'scheme' if you have no morals but is extremely unethical.

[JBmurc]

Going through the process to once again see what I can get on re-financing two loans total $616k currently with Westpac
Got some early details from ANZ best rates 1-2-3yr fixed term 3.89% + $3,000 cash to shift ... hoping to get them to improve offer as LVR under 50% .. not stressed to stay at WP if they can cut a sharp rate + cash to stay

waiting to hear back from ASB-Westpac thinking along the lines of fixing for 3yrs+ as thinking the cutting in rates must be coming to an end this year esp as the NZD is continuing to fall in value putting pressure on imports we kiwis depend on...

briefly talked with HSBC but as they don't take commercial property income into the lending equation I didn't even Qualify on income to debt

SBS-Kiwi-BNZ are complete muppets I'm not going waste my time with banks that don't understand residential equity or sane commercial lending timeframes

[baller18]

Got some early details from ANZ best rates 1-2-3yr fixed term 3.89% + $3,000 cash to shift ... hoping to get them to improve offer as LVR under 50% .. not stressed to stay at WP if they can cut a sharp rate + cash to stay


$3000 cash to shift, you meaning cashback right?

If that is the case, you can def get better cash back, it's normally $1000 per 100k. So could try other brokers as they get better deals.