Interest Rates

[speights boy]

Yep interest rates could get back to 8% but we'd see a huge housing crisis result, there'd be soooo many people defaulting it wouldn't be funny.

That's is why the LVR restrictions are a good idea.
If there are defaults, our banks are better protected.

If people can't afford 8% rates due to the size of their mortgage they could be downsizing now while prices are high.
If they don't, and then default in 2 years time .....well, who is really to blame?

[speights boy]

So SB, some time ago you were saying my mentioning the OCR could go up a lot was just nonsense and that you felt it might go up 1% max.

Over the following 18 months...ie: May 15, to be accurate.
Yes, now looks as though it could be a bit higher by that time.
I also said I hoped it stabilised at about 4.5%, which I think would be a healthy level.

You gave an example using figures that showed a 40% reduction in house prices.
I continue to believe that is nonsense - assuming only higher interest rates as the cause not any external global crises.

[speights boy]

So I think the politicians would try to avoid this at all costs.

What would you like to see them do in order to keep mortgage rates low ?

[Bluekiwi]

This is the real deal folks, OCR and floating interest rates are going up, short term rates too.
The 5 year rate has priced it, but the 2 and 3 year rates will go up as well.

Tony A and Raving Rodney concur.
Where in the past, over several years, there was forecasts of rate rises, these were averted by once in a lifetime events.
This time, apart from a major ecconomic shock happening very soon, they are going up.

The reserve bank is solely charged with keeping inlfation down, and they plan this out 1 to 2 years.
They cant let it get out of control.
All other concerns are incidental.

The economy is reaching a full head of steam, GDP and immigration and exports and construction are all guns blazing.
There is no other possibility.
The capacity constraints for this activity put huge pressure on prices, construction costs and wages, everything.
The high dollar cant insulate us from all of this.

I am breaking the few remaining loans that are not fixed, that come up July and August, and fixing them at 3 years in the next few weeks before that rate goes up.

[PTILoveYou]

Yup, the inevitable is coming, rates will rise (it's rising since July 2013), and will continue in the next few years till the next economic shock to bring it back down again.

[speights boy]

Yup, the inevitable is coming, rates will rise (it's rising since July 2013), and will continue in the next few years till the next economic shock to bring it back down again.

Gary, you posted these in July 13.
What did you end up doing?

No I'm serious, there is bound to be another low rate bank promotion to attract customers.

I think I will just fix between 6 months and 1 year from now on.

[PTILoveYou]

Gary, you posted these in July 13.
What did you end up doing?

Well the reserve bank killed the low rate really back then...

Recent mortgage renewals I have all fixed for 1 year.

This is my first up cycle as property owner and investor, so I want to experience the short term rates =D

[Wayne]

Well the reserve bank killed the low rate really back then...

Recent mortgage renewals I have all fixed for 1 year.

This is my first up cycle as property owner and investor, so I want to experience the short term rates =D

An interesting approach.
Will this give you something to learn from for next time?

[PTILoveYou]

An interesting approach.
Will this give you something to learn from for next time?

Yeah that's the plan. I hope my memory can last that long lol!

I fixed 5.25% for the past two years with one bank, coming up for renew in Feb 2014, so I have actually lost money in these two years...

So, the long term rates, 2 years+ just feel too high for me to jump into right now.

I think the banks have already priced their risk into these range of rates, and I feel if I take the longer rates, I will just get creamed by the bank again...

[PTILoveYou]

Has anyone fixed for 6.5% for 5 years back in 2009??

How do you feel now that you have lost money during the term?

[Wayne]

have you thought of averaging your risk over your 9 properties but spreading a mix of longer periods across your various mortgages?
Otherwise you run the rusk of coming of a short fix onto a serious rate hike.
People have under with that sort of thing if the cash flow can't take it.
People tend to think they'll just sell but find others are in the same predicament and prices drop. etc etc blah blah
Just a thought.

[elguapo]

I fixed at 7.4% for 5 years in 2007, currently fixed at 5.1% for most of my debt. It's all just a question of what your exposure is, no different to your exposure to house prices, exchange rates, tax law, etc. The more of these you can control the better.

[PTILoveYou]

have you thought of averaging your risk over your 9 properties but spreading a mix of longer periods across your various mortgages?
Otherwise you run the rusk of coming of a short fix onto a serious rate hike.
People have under with that sort of thing if the cash flow can't take it.
People tend to think they'll just sell but find others are in the same predicament and prices drop. etc etc blah blah
Just a thought.

Thanks for the thought.

Well I'm not a number cruncher, and all I know is if the interest rate hit 8%, I will be $400/wk negative cash.

So I can live with that.

But once the rises do come thick and fast, I probably will fix for longer, maybe, we shall see. At the moment I'm quite comfortable in terms of cashflow.

I need to speak to my accountant about the cashflow too!

[elguapo]

have you thought of averaging your risk over your 9 properties but spreading a mix of longer periods across your various mortgages?

Exactly. Most of mine is rolling over at the same time, which is not ideal. A mix of 3/5 year fixes with a small floating line of credit is ideal IMO.

[PTILoveYou]

I fixed at 7.4% for 5 years in 2007, currently fixed at 5.1% for most of my debt. It's all just a question of what your exposure is, no different to your exposure to house prices, exchange rates, tax law, etc. The more of these you can control the better.

Was 5 year rate that cheap in 2007? I thought the floating rate went up as high as 10.5% back then??

I probably start fix long term when the short term rates match the long term ones...