best interest rates

Fixed vs. Floating

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By Brendon Ojala

 

Now that we’re all getting used to seeing interest rates starting with a three, has the time come to lock it in for the long haul? And are there any hidden catches with these super low rates? Brendon answers all.

You will have seen banks advertising one- and two-year rates at 3.79% in the last couple of weeks. The trick with these is to watch for the little "conditions apply” asterix.

To secure these incredibly low rates you generally need to have a 20 per cent deposit, it needs to be your owner-occupied house, and the bank needs to be your "main bank" (that usually means you need your income going in to one of their accounts, and some times they require another product like a credit card or insurance with them).

It is pretty hard to go past these current low rates. Plus, there doesn't seem to be a lot of upside risk to interest rate rises, either in NZ or offshore. As I have been banging on about all year, the only upside risk I see is the Reserve Bank imposing new "capital requirements" on to banks which could lead to rising rates—so just watch for this at the end of this year.

The big news of the week of course was Official Cash Rate drop by half a percent. This level of drop caught almost all by surprise, and has led to banks dropping their floating rates (and at time of writing, some banks are also nudging down their fixed two years rates). The big question is this: how much lower can home loan rates go?

If you subscribe to the belief that rates will keep going lower, you would be fixing your interest rates for a short period (probably a year) and hoping that in a year they are even lower. You may also hold of locking in your rate, until you need to. You will start getting letters from the banks and emails from us 8 weeks prior to the refix date. In a world of lowering rates not rushing in would seem like a sensible strategy. If you are a little more conservative, you may be happy to lock away a sub-four per cent three-year rate, so you know what your mortgage payments will be for awhile yet.

Regardless of rates, you should seriously consider keeping some flexibility in your mortgage, because if you can pay a little more, you are going to save SIGNIFICANTLY on the amount of interest you pay to the bank over the course of the loan. How do you do this? Well, that’s an individual conversation, so don't hesitate to get in touch with your Velocity adviser to make sure you’re making hay in this sunny patch of interest rate weather.

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.

Fixed vs Floating

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The good times keep rolling in the world of home loan rates. But Brendon reminds us that this purple patch shouldn’t just be about using reduced interest payments as an excuse for a second island getaway or new SUV on hire purchase.

 

Home loan interest rates continue to nudge down. The one-, two- and three-year rates seem pretty solidly set under four per cent for awhile. 

 

There is talk that these may drop a little further, although it would seem there isn't a lot of space for them to move too much lower.

 

Given this, I understand the logic of fixing a large part of your home loan at three years. However, I always recommend in such cases to keep the payments the same (either paying extra in to a fixed loan or using some type of floating loan) as this can take years off your home loan. 

 

Don't forget, when rates dropped to six per cent we thought they were awesome rates. A $350k home loan costs $74 less a week than back in the days of six per cent rates. Surely, if one can't make some headway on today’s sub-four per cent loans, we’d be in trouble if (or when?) they start rising.

 

I personally like the flexibility of having access to the extra payments I can make in order to keep chipping away at it. But I realise this doesn't suit everyone. Some will be far too tempted to spend this. 

 

We are all different in what is an "optimal home loan structure" and it is important your structure works for you. Do feel free to get in contact with the team at Velocity and we can work through the best option for your situation.

 

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.

 

Fixed vs Floating

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Now is a great time to be refixing a home loan. As long as you have sufficient equity in your property it is very likely you will be fixing a home loan for a rate under four per cent.

The official cash rate has just reduced to an all-time low of 1.5%. This will mean some downward pressure on rates. However, it is likely the markets have priced some of this in already. At the time of writing, there has been no movement in terms of home loan rates, however, we wait with some anticipation.

 

The only upward pressure on rates seems to be the Reserve Bank consultation to increase the capital that banks are required to hold. If/when this gets agreed to, it will affect the profitability of banks and, therefore, is likely to see some upward pressure on rates. However, this seems like the only force capable of driving rates north right now.

 

On a related note, when an adviser from Velocity sits down and reviews a client’s home loan structure, it is very rare that there isn't some 'tweak' we can make to improve that client’s situation. Sometimes a major overhaul is required and, with interest rates this low, overhauls are common.

 

I hope that before your fixed rate rolls off, we will be in contact. However, our system isn't (quite) foolproof, so if we do miss you, please don't hesitate to make contact and we will chat through options over the phone or arrange a quick review meeting.

 

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.

 

 


Fixed vs Floating

Mortgage interest rates

Is it a case of making hay while the sun shines? And what of this talk of banks having to increase their capital? Is it the spanner in the works we’ve been waiting for? Brendon explores.

 

There have been no material movements in interest rates since last month and we are still sourcing short term fixed rates for less than four per cent (caution: criteria apply!!!).

 

Banks also seem pretty upbeat about giving away money in order to incentivise new business. As always a bit of competition in this space can be helpful to give us lenders favourable rates.

 

So, can we expect rates to increase from the lows we’re enjoying?

 

Of course, we don't have a crystal ball, however, many of the drivers of interest rate rises seem fairly mute right now—these being the Reserve Bank forecasts of inflation and overseas interest rate movements.

 

The main uncertainty that we are keeping an eye on is the Reserve Bank’s desire to increase the "capital" that banks hold. If this is actioned at the suggested levels, we are being told it will have a significant impact on the profitability of banks, which will only mean one thing: increased interest rates. So, watch this space.

 

What are others doing right now?

 

Most of our clients are making the most of the great one- and two-year fixed rates at the moment. And many are keeping some flexibility and focusing on getting rid of the debt by increasing their payments or using revolving credit or offset accounts to actively manage their debt. 

 

With rates so low, should I break my current fixed rate and lock in a lower one?

 

There are a number of factors to consider here. One really useful tool is this break-cost estimate calculator from Interest.co.nz. Whenever you break a fixed loan there is a risk of break fees. This calculator will estimate those for you (but do note that it is only an estimate).

 

https://www.interest.co.nz/calculators/mortgage-break-fee-estimator

 

If this is something you’d like to consider, we can work through the options and fine print with you.

 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.