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A look at interest margins on mortgages

Discussion in 'Finance & Banking' started by jeromanomic, 24th Jun, 2015.

  1. jeromanomic

    jeromanomic Active Member

    Joined:
    20th Jul, 2014
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    Location:
    Perth, WA
    Do Banks Pass on Rate Cuts? — The Finance Guy

    Interesting to see that bank margins on mortgages increased substantially during a period when consumers most needed economic relief...

    It will be interesting to see what happens in this space if Australia goes through a down turn
     
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  2. Albertus Waldron

    Albertus Waldron Member

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    13th Jul, 2012
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    Location:
    Sydney
    Bank Margins -

    Hi Finance Guy, What I find interesting is the fact that Banks and some lenders are passing on rate hikes to cover the capital they need to raise under the new regulations since July 2015. However many lenders have been testing interest rates as high as 8% since the GFC.
    As a result - actual default rates appear to be down on the typical averages and you have to wonder how high rates might go before we see some actual stress and distressed selling in the market place.
     
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  3. Albertus Waldron

    Albertus Waldron Member

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    13th Jul, 2012
    Posts:
    12
    Location:
    Sydney
    Finally some true competition seems to be returning

    I don't really agree with some of the benchmarking rules that APRA have enforced on the lender around minimum test interest rates payments and restriction to investor loans but at the front line I can say it is seeing some intense competition between lender who in the past simply said they were so big they didn't need to compete on rate.
     
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  4. Corey Batt

    Corey Batt Finance Strategist

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    12th Apr, 2016
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    Location:
    Adelaide, SA
    Whilst significant portfolio-wide stress testing is now rolled out across the industry, the expansion of significant debt with borrowers (particularly in Melb and Sydney) means that any substantial rise in interest rates will have a dramatic impact on borrowers cash flow positions.

    With the fact that we have not had trend interest rate rises in the market for the better part of half a decade, a very real proportion of borrowers have never experienced a rate rise and may not be able to cope with tightening budgets.

    As always - people need to ensure they're managing their cash flow appropriately and have risk mitigants in place for the future. If you have large amounts of interest only debt - factor in that there will be a point where your repayments will rise 40%+ and have to go to principal and interest - the regulatory changes will make this inevitable.

    If you're unsure how you will handle these changes, speak with an investment focused finance strategist who will be able to guide you as to how far you extend any investment IO lending and how to work together a cash flow strategy to ensure you're deleveraging bad personal debt and getting yourself into the best position for the long term.
     
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