How low will mortgage rates go?

With economic conditions around the World deteriorating, it is likely there are more cuts to come as the RBA pulls out all the stops to try to avoid Australia dipping into recession. A big ask, but not impossible.
While that is good news for borrowers, experts who research the lenders say that even bigger savings can be made by shopping around with other lenders.
While going to a mortgage broker is convenient, be careful because they do not always offer the best deals.
Consumer watchdog Choice recently shopped around on behalf of three borrowers. It found the best deals came through switching to mortgages offered by credit unions and the online lending channels of the big banks. However, these deals were not always offered through mortgage brokers. Choice found credit unions and building societies have, on average, "lower variable interest rates and lower fees than the Big Four banks".
Frank Lopez, an analyst with researcher Cannex, says those who took out fixed-rate mortgages before the middle of the year when the expectation was for rate increases would be kicking themselves now rates are falling. "Borrowers on fixed rates likely face huge break costs if they want to get out to take advantage of further possible rate cuts," he says.
They need to carefully consider whether the savings in interest rates will outweigh the break costs.
With interest rates likely to fall further, choosing variable rates looks like the better option.
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Markets are pricing in rate cuts that will take the cash rate to 3.75 per cent during the next six months.
The Reserve Bank has indicated it is prepared to cut even further to head off the worst of the global financial crisis.
AMP Capital Investor's chief economist Shane Oliver says the cash rate will most probably reach a low of 3.75 per cent by September next year but the Reserve Bank may have to cut even more.
"Unfortunately, it now looks like we are on the way to a mild recession," Oliver says.
"The threat to growth domestically is far more significant than was the case when interest rates were lowered to 4.25 per cent in 2001, which was the last low for interest rates."
CommSec chief equities economist Craig James is expecting the cash rate to be cut by another 0.25 percentage point next month. The Reserve Bank may then "sit back and see what the impact is on the economy".
He says the Reserve Bank may have to reduce rates again next year and the cash rate may have to be cut to 4.5 per cent.
"The speed of developments has taken everybody by surprise," James says.
"Midyear the Reserve Bank still thought that the next move in rates would be up rather than down." However, it is possible that things could turn up just as quickly as they have turned down. But don't bet your mortgage on it.

Mortgage shoppers delight in variable rate mortgages, fixed rates are for losers

Fixed-rate mortgage borrowers face hefty fees if they want to switch to a standard variable loan. A massive interest rate cut lastweek has made more than 43,000 fixed rate home loan borrowers Australia's biggest losers.
The costs of exiting an average fixed-rate mortgage jumped to $18,000 because break fees for the loan rise as interest rates fall.
Banks charge break fees to exit fixed-rate home loans so they can meet interest payment obligations to term deposit customers.
The Reserve Bank of Australia (RBA) on Tuesday announced it would slash official interest rates by 100 basis points point to a six-and-a-half year low of 4.25 per cent.
The 43,632 borrowers who opted for fixed-rate mortgages between March and August this year, when interest rates were at a decade-high peak, face hefty fees if they want to switch to a standard variable loan.
Official interest rates would have to fall to the lowest levels since February 1965 for these borrowers to recoup the cost of switching out of a fixed loan through cheaper mortgage repayments.
A borrower who took out an average $250,000 loan, fixed at 9 per cent for three years back in June, faces an $18,000 exit fee if they want to move into a standard variable loan.
Leaving an equivalent $400,000 loan would incur a $29,000 charge, according to Canstar Cannex data of exit fees charged by the major banks.
Canstar Cannex senior financial analyst Harry Senlitonga said lenders typically charged higher "break fees" to exit fixed-rate loans when official interest rates were falling.
"The more the interest rate cut, the more the break cost," he said.
"For a borrower, the question they need to ask themself is how long you have left on a fixed-rate and whether it's worth paying the fee or not."
Borrowers who took out a fixed-rate loan in August would face higher exit fees than those who took out a mortgage in March, when the RBA was still talking up inflation as its biggest worry.
Two of Australia's big four banks matched the RBA's one percentage point rate cut, which took the overnight cash rate to 4.25 per cent.
Monthly repayments on a $250,000 standard variable home loan with the Commonwealth Bank and NAB fell to $1,678 as mortgage rates dropped to 6.74 per cent.
By comparison, borrowers on an equivalent 9 per cent fixed rate loan are still paying $2,058 a month.
Switching from a $250,000 fixed-rate to a lower standard variable loan would reduce mortgage repayments by $13,680 over three years at current interest rates.
Borrowers would only recoup the $18,000 cost of exiting an average, three-year fixed-rate loan if official interest rates fell by another 75 basis points to a 44-year low of 3.5 per cent - and took standard variable mortgage rates to under 6 per cent.
After this week's rate cut, a one-year term deposit account with a rural bank was offering 6 per cent interest on $1,000, updated figures from termdeposit.com.au say.

Aussie Bank drops fixed mortgage rates by 1%pa in price war

ANZ Banking Group (ANZ) has matched National Australia Bank's (NAB) cut to mortgage interest rates on fixed home loans, lowering the mortgage rates by up to 100 basis points.ANZ has dropped the mortgage interest rate on one and two year fixed home loans by 1.00 percentage point to 5.99 per cent for both terms, the bank said.Rates for all other terms have been reduced by at least 16 basis points.The reductions will take effect from Monday, November 24.The move follows NAB's cut to interest rates on fixed rate home loans which came into effect on November 10th.
Interest rates on one-year fixed rate mortgages from Australia's major banks now stand at 5.99 per cent at ANZ and NAB, 6.99 per cent at Westpac and 7.14 per cent at Commonwealth Bank of Australia.
ANZ is also reducing its variable business loan rates by between 40 and 50 basis points.This includes a 40 basis point cut to the Business Mortgage Loan (Index) to 9.07 per cent, and a 50 basis point cut to the Business Saver Loan (Index) to 8.57 per cent.

Ian Thorpe enters the mortgage game against MrMortgage.com.au

Ian Thorpe, Australia's greatest Olympian, has become a mortgage broker, of sorts.
The former world-beating swimmer is a partner in a new website, launched yesterday, that matches banks and mortgage lenders with potential borrowers.Once a borrower is registered on the site, lenders bid in a live auction for the right to lend that person money, offering the cheapest rate they can to win their business.
Called ziggy-bid it runs on a similar principle to eBay, except the bidders are the lenders, and they're competing for business by offering low rates and promising excellent service. "I'm so excited by it," Thorpe said. "I was introduced to the concept about a year ago and loved it. It takes away all of the daunting elements about applying for a mortgage and introduces healthy competition into the market as the banks vie for your business."
Home buyers and investors simply register their details on the site, including some basic information about income and outgoings, type or property and rough location, and then stipulate a time frame of between one and five days as a deadline for receiving lenders' bids.
Fifteen lenders have signed up, including all the big banks.
"The longer you give lenders to assess your situation, the better your rate is likely to be, but it does give you the option of asking for a very quick decision," Thorpe said.
"You then get to pick from the best rate or the best service, because we also rate each lender on a customer service basis - usually about how quickly the lender will approve loans and the feedback we get from other borrowers - just like eBay.
"And we also calculate what we call a 'ziggy-rate', which takes into account all of the fees and enables you to accurately compare the true cost of the mortgage. It's all very clever and transparent."
The site runs on similar lines to bid-my-loan which also allows lenders to bid for borrowers' business, but not usually in such short time periods.

BankWest has lowered in rates in line with the big banks

Overseas owned West Australian Bank, BankWest has cut its standard variable rate by 80 basis points from 9.25 per cent p.a to 8.45 per cent per annum. The move comes after the major banks passed on part of the shock 1 per centage point cash rate cut by the Reserve Bank of Australia earlier this week.
Their rate tracker home loan will also move 80 basis points from 8.35 per cent p.a. to 7.55 per cent. This is one of the best mortgage loans in Australia according to Mr Mortgage
The new rates will be effective from 17 October 2008.

Mortgage Finance: what will happen to interest rates?

The Reserve Bank of Australia's dramatic 1% interest rate cut has not worked according to Mr Mortgage , even though they were followed with a joint round of rate cuts around the World, because consumers have stopped spending, and this has not helped them to restart because credit card interest has not been lowered and now investments and superannuation plunges are melting away confidence and job security.
On the housing front there are now 800,000 house-holds suffering financial [mortgage] stress, and the 0.8% rate reduction passed on by the banks will help a little, but that will not encourage new home buyers into the property market, with job prospects on the slide.
The fact is Australians are fully loaded with debt, and more debt is not the answer for their problem.
Paying down debt would be easier if credit card debt were lowered the 1% that the cash rate was discounted, but banks Worldwide have liquidity problems, so milking the poor credit card holder is an easy way out of their problem.
The answer to the question what will happen to interest rates is easy. They will fall, so expect another 0.5% reduction before Christmas. This will only solve a part of the problem. The reason that the share markets are in free fall is loss in confidence, and the reason for that is the lack of liquidity in the banking sector. Even if people can repay a loan, they may not be able to get a new one because the banks haven't got the liquidity.

Sub-prime mortgage blunders made in the USA and exported to you by unconscious incompetents

Henry Paulson, the US Treasury Secretary has been asleep at the wheel for the last two years at least when the Sub-prime Mortgage lending credit crunch first surfaced in finance news says Mr Mortgage.

 

Paulson seems to be another Bush-era ring and joins George Bush, Donald Rumsfeld and Dick Cheney  with the trademark combination swagger and incompetence, [they are unconscious incomptents, i.e.  incompetent but they don't have the intellectual capacity to know it.] 

As a former chairman of Goldman Sachs you would think that Henry Paulson actually had a clue, but as US Treasury Secretary he does not know what he is doing as he goes from one blunder to the next "rescue" of Fannie Mae, have triggered unintended consequences around the world, resulting in the death-spiral of financial values. 

But last Friday, Paulson outdid even these Rumsfeldian achievements, when he demanded $US700 billion ($843 billion) from Congress for a "comprehensive and fundamental" solution to the global financial crisis, without apparently having any idea of what he would actually do. 

The good news  is that Paulson's blunders no longer matter very much. There will still be a huge US government [US Taxpayer] bank bailout, which Mr Mortgage says will do little to avert a disastrous slump in the US and global economies. 

The other good news is that this mess wil have little effect to Australian mortgages and bank mortgage lenders.

But because President Bush and Henry Paulson have lost any political initiative, this bailout will now be led by the Democratic leadership in Congress and will be structured around its priorities -- relief from mortgage foreclosures, restrictions on bankers' pay and big government shareholdings in US banks. 

For President Bush it is a disaster, and he now looks certain to pick up the wooden spoon as 

"Worst US President Ever". He was certainly the most dangerous ever and the most lawless ever.

Expect more stuff ups from these maverick cowboys before they are done.