Future Interest Rates

Good question. 10+ years is a long time, and true, at best what rates will be like then is only an educated guess. Fixed interest loans work a little bit differently, but even so, many lenders will not offer one for more than 5 years.
One rough guide used to be to compare the rates for 2,3 and 5 year fixed rate loans, which gave a bit of an idea what 'the experts' were thinking. Fixed rates from many lenders have snuck up a bit of late, and you can bet another rate rise or two , or in the casr of some lenders if they get a whiff of a rate rise, the fixed rates will go up again. …….and those rates you qouted will no longer apply of course, unless you signed up for one and had it settle first – which is not a bad idea (but not for 10 years!)

As a sidepoint, I wonder how many people would want a fixed loan for that term? If they sold their house, the lender will get a huge early penalty payment, that will more than make up for the fact that th money may have been able to be 'sold' for more meanwhile.

I guess if you look at the Interest rates in NZ, they are what Steve is talking of now, which is more than possible, and maybe quite likely – who knows? Cheers.
 

Any opinions on whether to fix at 3 or 5 years. Potential for inflationary pressures to be around for some time to come with Aussie mining boom, drought etc and the effects of world economy and volitility in some major old school markets. Any thoughts on this as just looking to refinance myself on PPOR and new IP.
Cheers

Hi madprop – purely my opinion, for the PPOR I would be fixing at either term you mentioned, possibly five, depending on how long you have to go, BUT I am not a believer in signing up for a fixed loan that cannot have some extra payments made. (other than an option I will mention in a jiff….) Some lenders still do not allow this, others have an annual maximum without penalty, others a flat max amount for the fixed term. The thing is, no one can forecast ahead what circumstances may change in 5 yrs – new job? inheritance? BOnus? Sell the spare car? As far as the IP goes, much would depend on what you paln – if it is to sell within a couple of years, or the possibility you may, variable may be a wiser choice. The other option with the PPOR is to split the loan, with say a small part (25%??) variable, and the rest fixed. THat way, if the lender does not allow extra repayments off the fixed part, you can then make extra payments at your leisure from the variable part of the loan, and of course use redraw from it too if needed for emergencies etc. Three more rate rises on a small variable loan is obviously a lot less painfull than on the whole large loan. All the best.

All,

Nerds in the financial markets are basically saying:

.25 next week
some small chance of another .25 in December but
almost certain of another .50 by June depending on if (when?) the US slides into a recessionary blip.

The 3 Yr inter-bank rate has jumped .30% in the last week or thereabout so I think you'll find mixed rates moving up pretty rapidly in the next little bit.

My guess – headline rate of 9ish percent by June…assume you'll be paying 8.60-8.80% in reality.

Interesting stuff guys i'm no economist, my understanding of the economy is somewhat lacking, which is why i'm not so sure how things are goin to pan out over the next five years. The property boom of 99 to 2003 was said to lead to a massive bust in the real estate market but it didnt,  so things went quite for a bit then since the start of this year melbourne auc clearance rates have continued to rise, its almost like the people that seen the last boom dont wont to miss out again and are willing to stretch themselves financially to get into the market. The difference in 2007 however is that most motgages eat up more than 30% of peoples income!!! What does everyone think the future holds for us mear mortals??

Great thread! I need to refresh my economic knowledge. But if the world was to go into recession, what effect would that have on interest rates? I think it will reduce the rates to entice investment, is this correct? I guess this is what has happened in the US.

I agree that the Australian economy is growing very strongly, but you can't ignore whats happening in the US and the ultimate effect it may have on us.

Does anyone have any forecasts for interest rates?

We do have a plan B. Borrow money.

Wrap your head around this one… we have been borrowing money (at a national level – ie private debt) much faster than we've been earning money (at a national level – GDP). This is an unsustainable practise. However, if we had only ever borrowed at a sustainable rate, our economy would have been in recession for several years. This unsustainable borrowing/spending spree will naturally end at some point and we'll go into recession (declining GDP). What effect does that have on the aforementioned 'sustainable rate' of credit growth?

Cheers, F. [cowboy2]

erratik, that's it in a nutshell. Maybe not tomorrow, maybe not next year… but unless we find a supplementary industry the size of our current natural resources industry, we're headed for the worst correction in living memory. Most likely the greatest depression in our nation's history. Both the 1890s and 1930s depressions were preceded by just such a credit conundrum. This time it's just much bigger:

Now back on topic: The RBA has raised interest rates another 0.25% this morning, with fairly hawkish warnings of inflation breaching 3% by Q1 next year.

F. [cowboy2]

Thanks Foundation very good as usual …

Interesting times are a coming – cash is king – Steve is obviously correct predicting rates not just 10% but in my view higher … 2008 will be a year of smart planning for the following 10 year period …

D