Has anybody noticed that the 3-year fixed housing loan interest rate tends to take a dip from the term structure? Well, statistically speaking.
Admittedly, I have never taken an interest on the particular levels of the housing loan interest before I started to sort out the financing for the first apartment that I will have an ownership over. Obviously, when you go to a bank, along with the listed fixed interest over different maturities (you may know it as a binning period), some estimated spreads on each rate would be also presented by your adviser.
With the risk of sounding really uneducated, but um, how are the fixed housing loan interest rates calculated? Not sure if the spread is some sort of moving average assumed from some index rate or some money market rate. Though, some banks do publish their updated fixed rates annually. So what does that mean? That historical loss results are rolling into the calculation for the rates as well, somehow it adds a credit spread in some specific way. But other banks update the listed rates annually, so what does this entail? That different bank have different ways of calculating these rates?
Another thought, given it that these are individually fixed over a pre-specified period. So are they some sort of “swap” rates? We know that these pseudo swap rates are reset periodically, well, probably either monthly or annually against some reference floating rate here plus some spread. I wonder what this reference floating rate is question would be.
Also, the 3-year rate has consistently been the lowest point in the term structure in the past. Well, people are not dumb. Most likely any sane person would fix a significant portion of their housing loan on the 3-year term. So would their adviser suggest them do so. Well, in theory, after people started to exploit this lowest rate point, the invisible hand should somehow be able to navigate the market perception out of this anomaly. But somehow, this has not really happened yet. I wonder if there is some very particular about the 3-year term that everybody seems to know, or is there something inherent causing this phenomenon. Or, perhaps the rates are linked to money market rates, and in comparison, the size of a nation’s new housing loans is, well, quite insignificant compared to the market trading volume on the conjectured money market rate?
Well, I should probably do some background research on that. Stay tuned~