Variable Rates on the Way up -

Is it a Good time to Fix your Interest Rates?

As of Friday, 18/07/08, the last of the major banks, Westpac, has increased their variable rates. This decision was made solely by the banks - and not by the Reserve Bank of Australia.

This is unfortunately because the market is getting extremely challenging and Money is getting very expensive !! - Even for them - so they pass it on to you - the people who borrow money.

PS: Most banks have done this ’stealth’ increase mostly on a Friday - so that they don’t get hammered by the Press and the Public. Well that obvioulsy has worked in their favour - as this information was not highly publicised. I was not suprised when a lot of my clients did not even know that their rates had gone up, until they received an email me advising that it had happened.

You will definitely see a knock-on effect of increases in Credit Cards, Personal Loans & Car Loans.

I have sort of given an approximate breakdown of the Standard Variable Rates for the major banks below in the table. These rates are as of today (21/07/08) and are subject to change without notice - as we have already seen!

The Propack, 3 year fixed and 5 year fixed rates are based on a $350,000 loan taken by a client.

A lot of my clients have asked me what Standard Variable Rates (SVR) mean - A simple way to explain is like when you walk into a Hotel and ask what their room rates are for a ‘ocean view - 2 bed room’ unit is - The clerk behind the counter will usually quote you a ‘Rack-rate’ - This is a standard rate that the hotels will like to rent the rooms at - however - it is open for negotiation. So in the Bank’s point of view - the SVR is the ideal price at they will lend you the money at - however it can be negotiated down depending on the loan amount you take, the credit card, life insurance or other services you want - then they are happy (well not really) to bring the rates down.

As you can see, except for ANZ all the others have a similar 5 year Fixed rates or lower than their 3 year equivalent. This can mean 2 things:

1. Most banks except ANZ - think (at least for now) that the rates will be stable for now. OR

2. ANZ finds it too expensive for getting money for the 5 year period - hence they do not want to get any new business

Personally, my opinion is, I believe we will see at least another 2 rate rises - 1 before the year end and another by early 2009.

Disclaimer: This is my opinion - and the readers should do their own research and make an appropriate decision on whether to fix or not to fix their interest rates.

As we can see, the next 2 - 3 years are going to be very interesting - and I believe my Mortgage Planning service can be utilised to help you manage your money better and help you to pay off your home loans sooner.

I am sure you will have questions on how competitive your current interest rates are - as compared to what’s out there in the market - send me a quick email and I can look at your individual situation and find the most appropriate options.

Please add your thoughts / predictions on where you think that interest rates will be in about 12 months time and what your action steps will be to manage your predictions.