fixed vs floating

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.

Fixed Vs. Floating

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By Brendon Ojala

And the winner is … drum roll please … fixing! Fixing for one year to be precise. But, yes, as always, it does depend on your situation.

The good news keeps coming for those with home loans. Not great news if you have money in the bank savings accounts though.

Interest rates continue to nudge down through the month and there have been significant decreases in the three- to five-year fixed rates in particular. However, there are a number of reasons why most banks and economists are still seeing the “sweet spot” at a one-year fixed rate.

Most of our clients are fixing the majority of their loans for one year and many are leaving a small amount in some sort of floating rate (revolving credit or offset accounts) to provide for flexibility/debt reduction. In making these statements, the disclaimer of course is that every situation is different and unique, so a conversation with your adviser is key before settling on an interest rate strategy.

Anyway, here’s why fixing for one year is so popular right now:

The one-year rate is the lowest on the market and, for an owner-occupied property with 20 per cent equity, we are seeing rates of 4.1-4.2 per cent (the 3.99 specials have gone for the mean time).

The Reserve Bank governor has indicated any change in the Official Cash Rate (OCR) is likely to be mid 2020.

Again the Reserve Bank has indicated the next move for the OCR is as likely to be down as it is up.

Although noting there are other things that affect home loan interest rates rather than just the OCR, it does have a major impact.

Given the above (and of course, who knows what unpredictable market shocks will occur?) fixing at the lowest rate and having a really good chance of being able to fix at low rates in a year’s time seems like a sensible strategy for most.

Do let your adviser know before you re-fix your home loan for another period. We can get some rates from the bank for you to consider and talk through your best strategy.

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 – What gives you better Interest Rates?

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By Graham Goodisson

 

Very little has changed with interest rates in the past six months, but can it last? Graham discusses.

 

In early February 2018, we pointed out that rates were as follows:

·         Floating rate – 5.3%

·         1-year fixed – 4.30%

·         2-year fixed – under 4.5%

·         3-year fixed – under 5.0%

 

Today, in August, it’s pretty much exactly the same. Sometimes the rates shift slightly, but mostly they are as they have been.

 

So, what’s in the forecast? More of the same?

 

Yes, probably more of the same for the coming quarter. We aren’t seeing any major changes in international markets. US markets are slowly increasing but New Zealand, as it has been for some time, is nicely positioned to cope.

 

Right then, what should I do if my mortgage has become floating. Well, if you’re not going to clear it the next 12 months then at least fix for that … longer than that depends on your personal situation and please contact your broker for the appropriate advice.

 

What’s going to happen longer term? Brexit and Trump, along with trade wars, will all obviously have an impact on the global economy and the All Blacks will on the New Zealand economy.  However, it doesn’t seem as though big changes are on the short-term horizon.

 

Graham Goodisson 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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There is some upward movement in interest rates overseas, but not much happening here … yet. So, is now a good time to fix or to float? Brendon investigates.

 

In mid February 2018, there is in fact a little downward movement in short term fixed interest rates.  Here is what I think are “good interest rates” (for an “average-sized” home loan on your own home with 20 per cent deposit):

 

·      Floating rate: 5.3%

·      1-year fixed: 4.3%

·      2-year fixed: 4.5%

·      3-year fixed: under 5.0%

 

As I see it, there are a couple of significant forces at play on our home loan interest rates.  Firstly, the international interest rates seem to be rising (which many pick as the main reason for the US share market hiccup on Monday 5 February—rising interest rates mean the value of shares/companies tend to drop). In principle, this is likely to increase our longer term (3- to 5-year fixed) home loan rates.

 

Secondly, news continues to filter out confirming that inflation in New Zealand seems to be staying low. This would lead one to believe any increases in the OCR are still some time away. In principle, this is likely to keep our floating and short term (1- and 2-year) fixed home loan rates low for a while yet. Right now there is some price competition between banks that have seen small decreases in fixed 1-2 year rates in the last fortnight.

 

So … should I fix or float?

 

A good question! It is perhaps better to have a one-on-one conversation about that for your specific situation. However, here are some questions I ask all my clients before we decide on a mortgage structure strategy.

1)    If rates increased by 1 per cent (or 2 or 3) what impact would that have on your ability to repay your home loan?

2)    After paying all your costs, how much surplus do you have at the end of the week (or fortnight/month, if that is how you budget)?

3)    If you have a goal, are you good at saving towards that or would you still spend any money you have in your bank account?

 

Once we have the answer to those questions, we can start to get a really good home loan structure in place for you.

 

I can’t tell you what interest rates are going to do. I can pass on what many people wiser (?) than me think, but we can have a good guess and, if we get the structure set up according to the above three questions, you will be well on the way to having the best home loan structure set up 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: What will Labour mean for our rates?

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Is the arrival of a left-leaning government the catalyst for a hike in interest rates? Brendon explores possibilities and shares his tips for fixing and floating.

 

Pre-election, the common wisdom from those in the know was that interest rate hikes would be slow at best and would take a while. So, the recommendation for most was to fix for a year (and take the cheapest rate in the market). What has changed since then now that we have a Labour-led government?

 

Well, our mortgage rates are influenced by different things. The floating rates and short term fixed rates, are heavily influenced by local factors like elections and inflation. 

 

It seems the new government will spend more than the previous and the prediction is that this may mean more inflation pressure, which will likely lead to a lift in the OCR and short term interest rates. (Unless, of course, Winston is correct and there is an economic storm brewing …  in which case, not so much.)

 

The longer rates (three- to five-year fixed rates) are more heavily influenced by overseas factors, particularly US interest rates. They are nudging up, so watch what this space.

 

Despite the banks being pretty tough on new home loan applications, there is some competition between them, particularly in the two-year rate. One bank is offering 4.3 per cent for two years, which others have been struggling to match (at time of writing—however, watch this space).

 

If you can afford for your mortgage payments to increase a bit without hardship, lots of our clients are willing to take the risk and take the best rate for now (the one-year rate). Others are more cautious, so are splitting their loans between several fixed rates (leaving a little floating) or just opting for a two- or three-year rate in order to have certainty for a little longer.

 

As you can see, it isn't straight forward. Different decisions should be made on your interest rate strategy depending on your situation.

 

If you are a regular reader you probably get sick of me saying this, but I repeat because it is true and important: spend more time thinking about your debt reduction strategy rather than small differences in interest rates. The former is FAR more significant for getting ahead than the latter.

 

Your Velocity adviser can't predict the future, but they can work with you to put a good strategy in place. So, don't hesitate to make contact when your fixed rates are due to rollover. And keep in mind, don't just ask us "What interest rate should I take?" The best question is always "How can I get rid of my mortgage faster?"

 

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.

 

 

 

 

When it comes time to re-fix: The dos and don'ts

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When you get that email from the bank saying your home loan is due to for re-fixing, do you A) just hit the “yes” button, or B) take the opportunity to reassess in order to strike the best deal?

Re-fixing provides an excellent reason for reassessing where your personal finances are at, taking in the changes in the banking industry and adjusting your plan and home loan structure to suit.

 

So, here are some quick pointers to keep in mind for when you get that re-fix email:

 

Do … see the re-fix email as a chance to reassess your financial situation and survey the financial landscape.

 

Don't … just hit the button on the banks’ email or internet banking message without talking to a trusted financial adviser (of which, we can help!).

 

Do … use the automated calculators the banks provide—they’re very useful tools and help to make things simple. But they do have their limitations …

 

Don’t … just rely on these calculators as they often miss the individual nuances of people’s hugely varied financial and life situations. After working with literally 100s of home owners over the years, we know that everyone can benefit from a tailored and personalised strategy. There may come a day when technology can handle all these nuances, but until then we are here to help.

 

Do … get someone else to do the donkey work. Re-fixing at the click of a button is obviously less stress than researching the market and negotiating afresh with the bank, but the good news is that you don’t have to do that donkey work—we do it for you! 

 

So, the message from us ...  give us a bell before click the “yes” button on re-fixing. Let’s get you locked in to your best possible mortgage.

 

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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It may seem like groundhog again in the world of interest rates, but Brendon spells out the subtle changes that may influence your fix or float decision.

 

This month’s ANZ market commentary have pointed out that average mortgage rates have nudged a little lower in what we call the belly (two- to three-year rates) of the curve, but retained the familiar tick-shape.

 

So, from a pure “lowest is best” assessment, the one-year rate stands out. Slight movements lower in the two- and three-year rates have improved their breakeven points but not sufficiently for us to move from favouring the one-year rate as the sweet spot.

 

Longer-term rates remain very low by historic standards and offer certainty. The downside is that we struggle to see where inflation is going to come from to necessitate major lifts in the OCR.

 

To summarise all this, rates have dropped a little this month. So, if you want the cheapest rate take the one-year rate. If you want certainty, longer rates are historically still cheap. And ANZ don't see interest rates moving too much in the near future.

 

Whether you should fix or float is still a case-by-case issue. So, we don't believe it’s possible to say to all our clients as a whole, "You should do X." Many of our clients want to pay their loan off quickly, so will put a small amount on some sort of floating rate (be that revolving credit, offset or standard floating) and then fix the majority for some certainty. Others need more certainty than that.

 

As always a conversation with your friendly Velocity adviser can quickly work out a really good strategy designed with you in mind.

 

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: Negotiation and Hedging Bets

Interest rates are up on where they were six months ago. So is there still wiggle room for negotiating them down? Brendon explores and gives his fixed vs. float synopsis.

 

A good interest rate very much depends on the deal you have. So to explain what might be a “good interest rate” in today’s climate let’s paint a picture based on averages …

Assuming your loan is of an average size (say $400k) and you have at least 20 per cent deposit/equity then a good floating rate is around five per cent. A good one-year rate is around 4.5 per cent (maybe just under), a good two-year rate is around 4.75 per cent and three-year rate around 5 per cent.

In short, rates are now around 0.5 per cent higher than their low in November 2016.

Plus, right now we are noticing quite significant differences between banks in terms of their willingness to negotiate rates. To be fair, most aren’t negotiating. They are very much in a “protect their asset” mode rather than “grow their book of mortgage” mode.

The cheapest rate is the one-year rate, however, taking this rate will expose you to a higher rate in a year’s time when you’ll need to re-fix. Many of our clients are therefore taking a higher rate but having more certainty for two or three years or even longer.

In most situations, I recommend my clients have at least some flexibility, by putting some of their mortgage on a form of floating rate (be it standard floating, revolving credit or offset) and then having the rest fixed. Some are hedging their bets by having a portion of their debt fixed for a year and the remainder fixed for three years, as an example.

As I always say, everybody’s situation is different. So all the specific factors of your position need to be taken in to account. Getting this sorted for you is part of what your friendly Velocity adviser can help with. So don’t hesitate to ask for our assistance on getting your home loan set up in a way that is best for 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.

 

Fixed vs Floating: In a World of Unknowns and What Ifs

Okay, so what's up with interest rates? Where are they heading and how long should I fix for, if at all? Graham Goodisson gives his take on the current fixed vs floating debate

As always, it depends on your overall debt reduction strategy and where you are in that cycle. It also depends on what you are planning to do with your property in the next one-to-five years.

For example, if you’re planning to sell in the next two years then don’t fix for three! Also, if you think there might be a major restructure of your finances within that period, then plan accordingly.

Right. With the pre-amble done, what new stuff do I need to know? Three points …

1) Banks are not fighting for your business

Banks are trying to build profit on their existing clients, but they’re not chasing new ones. Currently, they are not really interested in beating the bank next door on interest rates in order to get your business. In fact, they are sneakily adding a 0.15% here and a 0.1% there when your back is turned. These tweaks don't make a massive difference to your repayments but they do add to their profits! Just remember that your point on this earth is to add to the profits of Australian-owned banks!

2) Banks are saving for the “what if”

The Reserve Bank is putting pressure on banks to keep enough funds set aside for “what if” scenarios—the “what if” being some sort of financial meltdown.  This means they need to hold more money, which costs them in terms of what they pay investors. You and I ultimately pay for this.

3) Uncertainty from over the pond

The once great U. S. of A. is part of the problem. No one really knows what is happening with interest rates there. Some think they are going up and others think down. 

So what would I do?

I think the two- and three-year rates are good value as five-year rates make me nervous. However, I have also continued to buy European cars that cost me a fortune to run, so can I really be trusted?

Remember that this is not specific advice to you and the best course of action is always to have a chat to your Velocity Financial adviser.

Graham Goodisson 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: What is Going on With Interest Rates

Interest rates might be low but that doesn’t mean the banks are keeping them that way. Brendon Ojala explores our fixed vs. floating climate.

First, the good news, interest rates are still at historically low levels. And if you currently own property, you will probably be feeling wealthier now than you did six months ago (for our Auckland friends this feeling of wealth increase has slowed somewhat of late, however, you have had your fair share of gains in this area in the last few years, so it is time to share the love).

Now, for the not-so-good news …

Bank Rates Are Up: On average, bank home loan interest rates have gone up around 0.25% to 0.5% over the last couple of months. And, in general, banks are tougher on lending money than they have been (see note 1 below).

Owner-Occupiers vs. Investors: Most banks are now differentiating between investment property loans and owner-occupied loans. The difference in interest rates being offered by some banks is between 0.1% and 0.2%. One bank is applying a fee now for processing new investment property loans or re-fixing investment property loans. (The rationale for this differentiation is because the cost of borrowing funds is higher for investment properties than an owner-occupied property—more on this to follow.)

Interest-Only: Interest-only loans are much harder to come by now than they have been previously. The feedback from banks is that they are nearing their capacity of interest-only lending based on the rules they operate under.

How big is Your Deposit? Lending with less than 20 per cent deposit is harder to come by than it was six months ago. (See above rationale from banks re: interest-only loans.)

Offshore Buying: If you are living offshore it is much tougher to get home loans in New Zealand now than it was six months ago.

So, given all this, what to do? Should I fix or float?

For the last two years, most of my clients have been taking the lowest interest rate on offer (that generally being the 1-year fixed rate). This was the strategy because the belief was that rates would stay low for some time.

In the last three to four months, however, I have noticed that many of my clients have been willing to pay extra for longer fixed rates, meaning that the 2- to 3-year rates are becoming more common.

The jury is out in terms of if the recent increases in rates will be sustained or if they will sit where they are now for the next period of time. I have heard commentary both ways, so it is pretty hard to pick right now.

Many of my clients are hedging their bets and taking some short-term fixed rates at the lowest price, some longer term and then keeping some in floating/revolving credit accounts to maximise the flexibility.

This makes sense to me.

What should you do? As we always say, everybody’s circumstance is different and what you will do depends both on your current situation as well as what you think will happen in the future. Obviously, the former is confirmed … the latter requires some crystal ball gazing.

As always, your friendly Velocity Financial adviser is more than happy to work through the details with you.

Note 1: The feedback from banks as to why interests have gone up, even though the official cash rate remains at historically low levels, is that they are running out of local deposit funds from which to lend. The banks operate under rules where so much of their lending needs to be done via deposits and they simply are not getting enough deposit money in to give out again in the form of home loan lending.

 This means two things: One, they will lend less. And the loans they do lend will be more expensive. More expensive as they have to increase their deposit rates to entice more deposits, and more expensive because the offshore borrowing they can do, is costing more because overseas interest rates are increasing.

Two, the banks also believe housing prices are reaching the top peak so they are insuring themselves in the event of a correction in the market. And those sceptics among us may also suggest that the banks are increasing their margins to make some more profit.

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: November 2016

Rupert explores what the new record low OCR means for your mortgage.

 

Another month and another OCR drop. The Official Cash Rate for New Zealand is now 1.75 percent—a new record low.

 

In response to the drop, all New Zealand banks chose to do absolutely nothing. In fact, two or three of them celebrated by raising their 3-year rates a little. 

 

Now, I know what you're thinking: "Those rascally banks. Trump was right, it's all corrupt."

 

But actually, this just serves to highlight that the Cash Rate works as an indicator of mortgage interest rates but it isn't as strongly correlated as we might think.  Overseas borrowing is expected to get more expensive and, as a result, the long-term interest rates are increasing.

 

This year, our cheapest interest rates have been between 3.99 and 4.05 percent (I know that one bank had 3.75 percent but they also deleted all the accounts with less than $100k in them so we're not counting them as a "bank of the people"). We're now seeing 4.19 to 4.29 percent even for the larger mortgages. We're still getting a healthy discount on the floating rate, so clients with a larger mortgage should be seeing around a 0.6 to 0.8 percent discount.

 

We're also seeing a lot of news about interest rates going up. We think that could happen but let's put it into perspective: Although rates may go up (and they've already gone up by 0.25 percent in the past few months), we're still not expecting anything over 5 percent for short term rates in the next six to 12 months. Historically, that's still pretty awesome!

 

With the addition of Trump, President Elect, now in charge of the Free World, we could see a bit of instability over the next six months (or four to eight years!), but we're hoping this will have minimal effect on New Zealand rates.

 

As always, it's important not to overthink the interest rates. The short-term one- and two-year rates are still a good option for minimising costs, and with the five-year rate well under five percent, it's still a good option for controlling your long-term interest rate fluctuations.

 

Rupert Gough is an Authorised Financial Advisor 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: 8 Things Affecting Your Interest Rate

Last month saw a decrease in the Official Cash Rate (OCR) and the banks’ mortgage interest rates nudged up … go figure! So, Brendon Ojala offers a quick reminder on the different factors that dictate how banks price their interest rates. 

The interest rate you secure will depend on all of the following factors:

·       The OCR and predications as to what it will do next—most pundits are saying watch for another         drop in November.

·       The international wholesale interest rates (watch the US Government, Fed, interest rates).

·       The amount of deposit funds the bank has available and what they had to pay to get this (this is         normally cheaper for a bank than “buying” funds on international markets).

·       The amount of market share a bank has verses what their target is (if they need more, they will          drop rates).

·       The size of your loan.

·       The LVR (the amount of equity) you have in your property.

·       Whether it is an investment property or owner occupied (or commercial property for that                    matter).

·       What competing banks are doing.

 

What is the moral of the story? Just because your cousin’s brother got a 4.15 per cent rate for one year, it doesn’t mean you will too.

 

All of the above eight things change all the time, so have a conversation with your Velocity Financial adviser to determine the best structure of your home loan. This is the most important conversation and, from this, we will be able to talk about getting you the best rates.

 

The good news is that for those of us with home loans, interest rates are at historic lows. So my suggestion is this: let’s make the most of that to help achieve our financial goals.