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Interest rate rises

Discussion in 'Finance & Banking' started by doogs, 14th Jan, 2008.

  1. doogs

    doogs New Member

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    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
     
  2. crc_error

    crc_error The Rule of 72

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    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.
     
  3. AsxBroker

    AsxBroker Well-Known Member

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    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
     
  4. crc_error

    crc_error The Rule of 72

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    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)
     
  5. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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.
     
  6. crc_error

    crc_error The Rule of 72

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    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..
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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!
     
  8. crc_error

    crc_error The Rule of 72

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    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?
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    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

     
  10. Tropo

    Tropo Well-Known Member

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  11. doogs

    doogs New Member

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    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.
     
  12. Billv

    Billv Getting there

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    Doogs
    That's strange, who are you with and what's the name of your loan?
    Cheers