Hi All Can someone please explain to me how the banks can justify the rate increases of last week by using the increases in what it costs them to buy their money. I've had a mortgage for 2 years, so how does the rate it costs the banks now effect the money I borrowed 2 years ago. Shouldn't their costs today only effect new loans?? I hope this makes sense?? Doogs
unless you fixed your rate, the bank will be re-buying your money every 180 days in the short term money market. If you purchased a fixed rate, then the bank would also buy a fixed rate in which case their costs wont change.
Hi Doogs, Like CRC said, they buy the money every 6 months. I'm a little more cynical, they charge what they can because they can and they are a for profit business. Tell me about the hits, I've had three 0.70% increase since July 07. Fortunately for my family we aren't struggling but it is kind of annoying but that's life. With the quarterly inflation figures being 3.7% pa it's going to be a bumpy ride! Cheers, Dan
what I find funny is how swan is lashing out at banks for raising rates independent to the reserve bank. Since the reserve bank is looking at raising rates very soon, aren't the banks doing the reserve a favor by slowing down the economy? He should be lashing out at the reserve as well if thats his view. plus I don't see why borrowing costs are going up for the banks, aren't they borrowing from the US where rates are going down? Where do Australian banks get their money from? (other than banking deposits)
The problem is that given the higher risks at the moment - banks are insisting on a higher profit ("risk") margin from their lending - especially when lending to other banks. This increases the cost of borrowing, which naturally gets passed on to the consumer.
arent they getting a higher 'risk' margin just by borrowing from say the US which has lower rates? sounds like a reason just to make more profit..
It's not quite that easy ... don't forget that by borrowing offshore, they also have currency issues to deal with - and hedging ain't free!
so how does it work when the reserve bank changes rates, that everyone has to adjust their rates as well? If the banks borrow overseas, shouldn't the rates be determined by overseas rates? Or do banks borrow money from the reserve as well?
The RBA operates to maintain the short term money market at close to the "official" rates ... Have a read of this for more info: RBA: About Monetary Policy
"We will always get the money. The issue is at what cost," Bagrie said. It was not just the US subprime housing crisis, he said. "It is a rerating of credit risk across the board." ANZ raises NZ, Aussie interest rates - Business - Dominion Post Interesting reading : MONEY & BANKS..... THE HIDDEN TRUTH BEHIND THE GLOBAL DEBT SCAM by Richard Greaves Why can't I borrow like a bank? - Answer desk - MSNBC.com
Thanks for all the responses. We are in the process of changing our LOC mortgage. We thought we were on a good thing with our rate linked to the short term money market, but with what is happening at the moment we just had an increase of .7% in one hit.
