As Mr Mortgage predicted last month, the Central Bank did not raise interest rates in October. He is now saying its time to move away from the big four banks, and to a non bank securitised mortgage lender if you want to have lower mortgage rates over the next twelve months. Here's why.
The big banks are itching to raise mortgage rates above official cash rates
The big banks were all set to jack rates up on you under the cover an official rate rise. So this would mean that you would get two mortgage rate rises at the same time. Can you afford that? I don't think so.
Central bank interest rates "talk up" outsmarts the financial markets and the banks
The Reserve Bank likes to outsmart the financial markets every so often, and it did in October. It made noises that sounded like a rate rise was coming the Aussie dollar went up, and the reasons for the rate rise were out weighed by the reasons to hold on an interest rates rise.
In effect the RBA board figures if by talking about a rate rise can do the job of an actual rate rise, its done it's job of controlling inflation and keeping unemployment low, so no rate rise is necessary. Am I the only one that figured this out? No, but the vast majority of economic experts believe their own spin.
Reserve Bank interest rate talk up creates a gain without the pain of increased mortgage repayments.
The other benefit that the RBA has in employing the talk rates up is, that it still has the interest rate card to play if home buyers and consumers stop listening to the messenger of doom. So the reserve Bank has stretched the value of a rate rise and reduced the pain of the real thing. I like it.
In the game of chess the threat of doing something can be more powerful than actually making the move. This is the smart game that the Reserve Bank is playing where ever it can, because they are persuading people to do what the want, without actually inflicting the pain of a mortgage rate rise.
Why you should move your home loan away from the big banks if you are worried about increasing mortgage rates.
Based on their own assumptions,the major banks made deep losses betting the wrong way. I am talking millions of dollars in a few weeks from each banks bottom line.
The major banks tippied that the RBA would raise the official cash rate by 25 basis points to 4.75 per cent.
Not only that, they have been raising hundreds of millions of dollars in short-term funds based on pricing that factored in a higher cash rate. Hmmm? I wonder where they will be getting the money from to fill that hole?
These banks are believed to be sitting on these big losses and are now looking for someone to milk it from. Don't let that be you. Move your loan account now.
Mortgage rates: Lessons learned.
The major banks will have to raise mortgage interest rates, without the Reserve Bank moving interest rates sooner or later, and the RBA knows this.
The RBA can now sit back and watch the major banks squirm, knowing they're under pressure to raise interest rates themselves out of cycle with the Central bank. This tension will create more uncertainty of a rate rise in coming months and by then the banks will have to move on mortgage rates even if the RBA sits on its hands.
Result? The RBA can leave interest rates as is because the major banks will do its job for them. That is, if cooling the housing markets further and moderating consumer spending before the holidays are its aims.
Are you worried about a mortgage interest rate hike?
If you are worried about rising mortgage rates I suggest that you start shopping for a "non bank mortgage lender". They have lower interest rates, lower or no ongoing fees and charges and they need your business right now, so they will look after you better.
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