I think this will lead to a fall in the interest rates of fixed loans, or will mean no increase in what is being offered for a while. I still think variable rates will go up another half a percent in the next four months.
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I have just jumped on betfair and managed to make a bet for a quarter percent rise at 1.85 to 1 odds. I am not 100% sure that there will be a rate rise – but am more than 75%, so my odds are OK IMO. This is because inflation has hit about 2.1% for the year just passed, according to the TD Securities/Melbourne Institute monthly inflation gauge. I think that the market will start to factor in more rate rises very quickly. So don’t sit on your hands if you want to be fixed. However if you plan to fix just to save money, my predictions suggest you will end up about square on a three year fixed. And behind for the rest. If you want to be fixed, then maybe sooner is better than later, as I believe increases in fixed rates will flow through within the next two weeks. Excuse me if I state the obvious here! There are times when a fixed rate home loan can provide some certainty over a period of extra financial or emotional stress. Interest rates can move further than you expect. It may be worth considering fixing a significant part of your borrowings in the following circumstances: Many errors were made from about Jan 02 to Dec 04 with staying variable, and from about Jan 07 to June 08 with people fixing for long terms. You can see on the charts that from Jan 07 to June 08 there was not much pressure for rates to go up further. However in Jan 02 to December 04 there was significant upward pressure on rates. This indicator could have assisted many borrowers at these times, to make a better decision on whether to fix or not. I wish I had a crystal ball, as it is possible that the US could respond to their problems in 2012 by printing money to “inflate” out of trouble. However I believe that the US still has plenty of borrowing power left and will not need to go down this path (The UK and Japan may be another matter). Well – the usual situation is that nobody guesses what will happen . . . There are four stages of a loan process when the rate may be locked in: Beware that sometimes there is a (rate lock) fee to lock in your fixed rate, rather than only having the rate locked in at settlement. The questions to ask if you want to take up a lenders rate lock option include the following: I’ve been told there are limits to how much extra I can pay on my fixed rate homeloan, above the minimum repay? What is going on here? |
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