Fixed vs Floating

With the OCR so low shouldn’t we look to just lock in super long fixed mortgages? Brendon investigates the options.


Last month (March 2016) the official cash rate (OCR) dropped to 2.25%. Most commentators are suggesting that there is one or two more rate drops to follow in the next few months. Note that the next OCR announcement is on the 28th of April.


Don't forget, though, that fixed-rate mortgages aren't directly related to the OCR. As an example, just before Christmas, the OCR dropped but longer term fixed rates increased, which surprised some. The reason for this was that the US equivalent of the OCR was increased which had an effect on international money markets and so our fixed rates increased in line with this.


Currently, New Zealand’s floating interest rates are around 5.50%. If you have equity in your property, they should be discounted closer to 5%. Do let us know if you're paying more than this and we can look at options for you.


Right now, a good 1-year fixed rate is in the low 4%. I have seen some advertised this week at 4.10% moving up to a good 5-year rate at around 5%.


Back to the point of this blog … should you fix or float?


Most bank economist commentators I have read over the last few weeks are suggesting that the best value for money is in the shorter term fixed rates, in 1- or 2-year fixed rates particularly. They are saying this because they can't see the value in fixing for a longer time given this will cost you more.


They obviously believe that fixed rates will stay low for some time and that we will be able to fix on future low rates while they remain low.


So, that's what the common wisdom is right now. However, we have seen before that common wisdom has been wrong!


What you choose to do with your mortgages, as always, is a combination of market and individual circumstances.


Advisers at Velocity have this conversation with our clients many times each week and are happy to have that with you.


Please don't hesitate to make contact if we can be of any assistance.


Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.