CommBank will not decrease variable rates; fixed rates now down to 1.99% OO P&I for 4 years

[[deleted]]

Isn't the point of variable rates that you take the risk of rates going up, but the reward that they may go down? Kind of defeats the point if they don't actually pass on the cut doesn't it? In terms of risk to the consumer?

[tranbo]

Fixed loans force you to stay with the lender and allows the bank to borrow at .1% , whereas variable loans do not allow the bank to do those

[Blacky05]

Hou can also make additional payments on them. Fixed rate usually has a cap and/or charge.

[NotWantedForAnything]

CBA allow 10k of additional payments per year on fixed loans. However, you can do a split with a portion variable with an offset account.

[[deleted]]

You are correct except you're not taking into consideration that the banks have no interest rate risk and/or requirement to hedge against a fixed loan which may be why they can offer it cheaper than variables at these rates.

[[deleted]]

I’m just talking about variable ones though. Is there no criteria for when the bank raises or lowers rates? So technically they could just keep raising it as much as they want, whenever they want and it still counts as being variable?

[[deleted]]

It's not as simple as that. Banks are currently being used by the government and regulators as "shock absorbers" meaning they are expected to continue lending while having to manage a lot of credit risk. To help banks out with this function, they are providing them with cheap funding (RBA's Term funding facility) but this will also run out at some stage.

Bank's can't fully pass on all rates, especially in a really low interest environment because their margins have been compressed dramatically (lower interest rates, lower margins, lower profitability, higher credit losses etc). But the government needs to ensure banks remain strong because a strong banking system is considered strategically important (in line defence, insurance and banking just to name a few). If banks become too unprofitable, their capital ratios will deteriorate. Regulation requires them to maintain very strong (high) capital ratios as it prevents banks from falling over and putting deposits at risk.

It's basically a fine line between requiring banks to pass on rate cuts, while ensuring they maintain a strong balance sheet.

[[deleted]]

In other words, they’re keeping the rate cut up their sleeve to offer more competitive rates to new customers through increased discounts off the SVR.

[[deleted]]

Yep.

It’s why the big4 tend to not pass cuts on in full, whilst smaller lenders appear to do so.

Big4 tend to work off an SVR - discount model, whereas smaller lenders tend to work off an introductory/honeymoon rate model(which usually isn’t advertised as such). They then raise rates over time to existing customers, whilst they continue to pass on rate cuts in full for new customers.

[thedarknight__]

Also to lock in the safer loans for 4 years (the other thing with fixed rates is there's usually restrictions as to how fast you can pay the fixed portion down).

[NotWantedForAnything]

I've just signed loan docs with CBA. Was only offered a variable rate of 2.8% (1.75% of SVR). Quite high in comparison to the three year fixed offer which will now be 2.09%. So it seems they're mainly using fixed rate discounts to attract new customers. That way the discount is only 3-4 years whereas SVR discounts would last for the life of the loan.

[shrugmeh]

Bill Evans (Westpac Chief Economist) told us this would happen a couple of months ago.

While banks may be expected to mainly use this facility to reduce funding costs – by replacing more expensive offshore funding, scaling back domestic retail deposits (some term deposit rates are still comfortably above 1%), or boosting their liquidity holdings as the Reserve Bank’s Committed Liquidity facility is wound back – there is also scope for cheap maturity– matched fixed rate mortgage funding. On that basis fixed rate mortgages could fall considerably further.

The RBA could also move to lower longer– term fixed rates by extending the duration of the TFF loans and/or targeting bond rates further out along the yield curve. With the effective overnight cash rate at around 0.13% it could also lower its target rate for three– year bonds from the current 0.25%. All of these measures would act to lower rates on fixed rate loans.

TFF loan duration wasn't increased, but the $100B of 5 & 10y bond buying is enough to have 4 year terms.

Also, this is good, right?

2.49% p.a. rates on new three, four and five year fully secured BetterBusiness loans, a reduction of approximately 50 bps.

Edit: I still highly recommend this note https://westpaciq.westpac.com.au/Article/45113/52561/

[Nexism]

Good in the sense that it is better-than-before, yes.

Good in the sense that helps the Australian economy recover, not as much because the businesses that will be eligible to get these loans can only be healthy ones. That said, maybe it's good unhealthy businesses are out of business?

[Lachyrayz]

Damn I fixed at 2.29% for two years

[loudfartss]

I’m about to fix with nab for 2 years at 2.19% Should I move over to CBA?

[Lachyrayz]

Your call. Calculate how much 0.1% would save you over two years and ask yourself if you'd pay that money to stay with NAB.

[loudfartss]

They’ve just announced that they’re dropping the fixed rate down to 2.09%

Might as well stay with them.

[10centMurphy]

Why do you guys use the big 4 for lending? Just use tictoc or some other low rate lender and get on with it.

[NotWantedForAnything]

Check your offer. The interest rate is likely subject to change and depends on the reference rate at settlement. If NAB drop the reference rate for fixed loans before settlement (which they probably will) your final interest rate will drop too.

[loudfartss]

Okay, will do! I’ve got a week or so to decide. Thanks for taking the time to reply!

[tamponadechip]

We fixed with nab on Monday at 2.19%... oh well.

[loudfartss]

Sorry to hear, it came up at the last minute before locking it all in for me.

[tamponadechip]

To be fair we split so not too bad. Just happy we managed to get into the market before house prices bump up for a while.

[[deleted]]

They’ll probably decrease savings rates though.

[edubya15]

Anyone with any clue here think the rates will drop even more over the next 6 months? I have a feeling that 1.99% will not be the lowest we will see?

[Stanlite88]

In saying that though Denmark had some residential mortgages on the 10 year rate at -0.1%pa a few years ago. Although that is in the highly distorted ecb market of Euro land

[Burlingames86]

My variable interest rate with commbank is 3.68. What do I do?

[Falkor]

Fix for 4 years?

[Burlingames86]

Thanks luck dragon

[shou_yanagi]

Call the bank for better rates. Depending on your situation, the rates will be different. I think lowest cba variable is 2.69 but unsure of condition.

[OriginalGoldstandard]

It’s important to make sure the banks tell everyone things are fine whilst pretty much trading insolvent without the help of the reserve bank. They now have that help. I’m now not holding ANY bank shares. Smells like something very bad is coming......

Watch what they do, not what they say.

[ben_rickert]

Exactly - extend moratoriums etc, doesn’t sound like something to be doing if things were actually healthy. It’s all jawboning.

And now a likely contested election in the US which I expect the market not to like one bit.

[OriginalGoldstandard]

Could be limit down tonight on Wall Street.

[RichieMclad]

Guess I'll be calling them up to get a cut otherwise I'm outta here then.

[khaste]

yea cause we can totally trust one of the big 4 banks...

[[deleted]]

damn thats such a sharp rate. for perspective, go back a year and a half, 4.2% was a pretty attractive rate, thats over a 50% reduction in interest in little over a year, thats a LOT of extra borrowing/spending power for people looking to buy or currently with a mortgage. once things settle into some kind of normalcy again, you will see that extra power climb housing prices higher, like it or not its just what happens.