Interest Rates

[speights boy]

One of the reasons they are profitable is because some people use their homes as ATMs.

Put $5,000 of consumer debt on a credit card @ 20%; pay it off over 6 months and interest costs are relatively low in dollar terms.

Put $5,000 of consumer debt each year onto your mortgage @ 7% and make very little inroads on the principle as house price rises over 10 years then the banks just love it.

That sort of debt via a mortgage does not seem to have the same effect psychologically on people because the increases are relatively small and the interest rate is seen as relatively low.

[Wayne]

I agree with what you say SB but that has little to do with high LVR loans and profitability. Unless banks charge a premium for high LVR loans they can't be a more profitable product.

[speights boy]

What gets people as well is that this fee can often be added to the mortgage.
Therefore the interest on a high fee over the years adds up.

Kiwibank imposes the highest low-equity fee, of 0.5% between 80% and 85% LVR, and 0.75% between 85% and 90%.
Above that, borrowers are charged 3% of the loan value.
The fee is high because Kiwibank outsources its lender's mortgage insurance, which other banks self-insure.

www.goodreturns.co.nz/article/976500798/new-low-equity-charge-for-westpac-customers.html

[speights boy]

Rate rise tipped by year's end

The Reserve Bank may start lifting official interest rates as soon as the end of the year, despite annual inflation running under the central bank's target band for a year, some bank economists say.

UBS economist Robin Clements said UBS expected the Reserve Bank to start lifting the official cash rate from 2.5 per cent in December, taking it to 3.75 per cent by the end of next year.

Without the help of falling import prices, headline inflation was expected to rise "quite quickly". That meant it would no longer be appropriate to hold the OCR at an all-time low of 2.5 per cent, Clements said.

www.stuff.co.nz/business/money/8926687/Rate-rise-tipped-by-years-end

[Wayne]

What gets people as well is that this fee can often be added to the mortgage.
Therefore the interest on a high fee over the years adds up.

you would still have to factor in the failure rate of such loans and how much, if any, they end up writing off before you would know if it was good profit or just reward for risk.

[dandan]

I think what Bernanke is "effectively" saying is that the economy is a game of two halves, things might improve in which case QE will decrease, or things might get worse in which case QE could increase, the economy will decide the winner on the day.

http://www.stuff.co.nz/business/world/8933429/Bernanke-eventual-rate-hike-cycle-to-be-gradual

[speights boy]

BNZ sees value in fixed-rate loans with OCR ready to rise

It expected the OCR to reach 4.50 per cent by mid-2015, up from 2.50 per cent at the moment.

www.stuff.co.nz/business/industries/8931839/BNZ-sees-value-in-fixed-rate-loans-with-OCR-ready-to-rise

[dandan]

I've cross checked what Bernanke said, with what my local dairy owner thinks and the opinions appear to match.
My current understanding is that long term fixed interest rates are rising due to the rising of cost of overseas funds due to no one knowing whether overseas funds should be rising or not, but that the economy will let them know later.

[speights boy]

I've cross checked what Bernanke said, with what my local dairy owner thinks and the opinions appear to match.

A very handy man to have as the canary in the coal mine, double d.
When he puts his bread and milk up you will know Wheeler is ready to rain on Key's parade.

[dandan]

BNZ sees value in fixed-rate loans with OCR ready to rise


www.stuff.co.nz/business/industries/8931839/BNZ-sees-value-in-fixed-rate-loans-with-OCR-ready-to-rise

In the above article it goes on to say
"The reasons we're calling for interest rates to go up is based on macro-economic outlook and trends - in other words, the entire economy, which is different to saying we think these rates need to go up because of the Auckland housing market."

Cool man, and what's the marco-economic outlook based on, nothing? Because the economy looks pretty rubbish.

[dandan]

A very handy man to have as the canary in the coal mine, double d.
When he puts his bread and milk up you will know Wheeler is ready to rain on Key's parade.

Indeed, bread milk and smokes:-)

[speights boy]

and what's the marco-economic outlook based on, nothing?

Roger J Kerr sees the 'storm clouds' of inflation building as capacity utilisation rises, and despite the expected tame Q2 CPI result due today

Do not be persuaded by the arguments that as inflation results have been lower than forecast over recent quarters and the annual rate of 0.8% is below the 1% to 3% RBNZ target band the RBNZ will be hesitant about increasing the OCR.
That is a very short term view and one prone to abrupt change when the following storm clouds on the inflation horizon are viewed:

www.interest.co.nz/opinion/65416/roger-j-kerr-sees-storm-clouds-inflation-building-capacity-utilisation-rises-and-despi

[dandan]

Smoke and Mirrors:

Roger J Kerr sees the 'storm clouds' of inflation building as capacity utilisation rises, and despite the expected tame Q2 CPI result due today

www.interest.co.nz/opinion/65416/roger-j-kerr-sees-storm-clouds-inflation-building-capacity-utilisation-rises-and-despi

All based on the US bond market and our dollar compared to the US dollar which returns us to Bernankes latest comments about him waiting for the economy to show him the way.
Forecasts based on forecasts based on nothing a mirrors of other forecasts.

http://www.interest.co.nz/news/60271...-rise-1999-rig
Annual movement held up by ciggie taxes
The 1.0% annual rise in the CPI followed increases of 1.6% in the year to the March 2012 quarter and 1.8% in the year to the December 2011 quarter.
Stats NZ said the main upward group contributions came from:

• Housing and household utilities (up 2.7%)
• Alcoholic beverages and tobacco (up 6.2%)
• Miscellaneous goods and services (up 3.4%)

The communication group (down 9.5%) and the recreation and culture group (down 3.2%) made the main downward group contributions, Stats NZ said.
Inside those groups the main individual upward contributions came from:

• Cigarettes and tobacco (up 13%, reflecting higher excise duty)
• Rentals for housing (up 2.3%)
• Electricity (up 3.7%)
• Purchase of new housing (up 2.8%)
• Second-hand cars (up 5.3%)
• Local authority rates and payments (up 4.6%)
• Beer (up 4.9%)

Without the rise in cigarette prices, the CPI would have risen 0.6% annually, Stats NZ said.

[dandan]

Young people might leave. Too hard to get a house
http://www.interest.co.nz/news/65464...-buyers-are-fe
ANZ-Roy Morgan Consumer Confidence survey shows that young adults and first-home buyers are feeling much less confident about their lot

Other people might leave. No jobs
http://www.interest.co.nz/news/65461...-recession-has
Latest ANZ job ads survey shows the employment market remains flat and recovery from recession has been a 'slog'

[drelly]

So come on dandan, what are you saying? You don't think rates are going to rise over the next year or two?