interest rates

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.

Fixed vs Floating: New Year, New Interest Rates?

Starting off 2019, interest rates are staying low but the Reserve Bank may have a trick up its sleeve that could have a downstream influence on the great fix versus float debate. Brendon explains.

 

There has been some post-Christmas sharpening of home loan interest rates. 

You will see a 3.99 per cent for one-year and two-year loans currently being advertised. This normally applies for "main bank", owner-occupied clients (in other words, not for low deposits or investor-only clients).

 

From an economic perspective, there doesn't seem to be any upward pressure on these rates for 2019. Interestingly enough, the only pressure that may come to bear is a potential Reserve Bank/government regulation requiring banks to hold more capital.

 

The Reserve Bank has suggested that the percentage of "money [that] banks have in hand per amount of loans outstanding" may need to increase to better protect the banking system from any economic shocks (known as capital adequacy ratios). If this is implemented, it will effectively increase banks’ running costs. Unless the shareholders are willing to take lower returns (??!!), then the customer will pay—at banks, this means increases in interest rates.

 

So, should you fix or float?

 

Securing an interest rate under four per cent isn't bad!

 

Up until now, most of our clients have been fixing for one year because that was the lowest rate and because the expectation was rates would stay low for another year, giving time to re-fix in a year for a still low rate. 

 

The only spanner in the works to this approach is the possibility of the above regulatory change, which still remains to be seen. The potential for changes introduces some uncertainty to the mix and some of our clients may choose to minimise that risk by fixing for two years, at what is now a great two-year rate.

 

Be aware that all clients won't get that exact rate, as it is case-by-case, bank-by-bank. If you have good equity, you should be getting close. Note also that everyone is different, so how long you fix your loan for may be different than the next person.

 

Also note that it is often wise to keep some flexibility. Channelling any cash surplus to your home loan in a smart way can surprise many with the difference it can make.

 

We can work that all out 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

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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

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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: Feeling lucky?

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Brendon reveals the current best rates on the market and suggests that now might be a good time to bet on interest rates staying low.

Assuming you have at least 20 per cent equity and an average-sized loan on an owner-occupied property (note that these things matter when it comes to what interest rate you will be offered) the following are good rates right now:

 

·      1-year fixed rate is 4.3%

·      2-year fixed rate is 4.6%

·      3-year rate is around 5.0%

·      5-year rate is around 5.5%

·      A good floating rate is discounted to around 5.20%.

 

The amount of cash you can expect to receive from the bank as an incentive will vary anywhere from zero to almost one per cent of the loan amount.

We have seen a few drops in interest rates over the last week or so. Lenders are definitely starting to sharpen their pencils on their two-year fixed periods, as well as some of the longer term rates. And we are starting to see some good discounting on particularly strong deals. It looks like banks may be gearing up for their “spring sales”—if there is such a thing in the banking world.

So, what would I do if I was fixing my mortgages right now? 

If I felt like taking a bit of a gamble, I may fix for one year and roll it over year-on-year. I would win this gamble if rates don’t go up too fast over the next few years, as the 1-year rate is the cheapest on the market. To back up this approach, of late, there have been hints that things aren’t going anywhere fast, both locally and internationally, so perhaps it’s not a bad bet.

If, however, I get that wrong, and my budget won’t deal with large potential increases in mortgage costs over the next few years, I would fix for two or even three years and be willing to pay a little more now for that certainty. I would definitely keep some of my loan floating (in lines of credit or offset accounts) to allow me to pay extra down and have the flexibility of re-drawing these funds should I need to.

Additionally, banks are making it increasingly easy to re-fix on line. However, the downside of this is that there is no advice being offered during the re-fixing process.  So if you want some advice around what to do with a home loan that is rolling off a fixed rate, do get in contact with your friendly Velocity adviser.

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's new, what's old and what to do about it

While the OCR remains unchanged, most interest rates are inching up … what’s going on? Brendon explains.

 

Here is what I have noticed in the last month or so …

 

1. Interest rates have nudged up bit by bit

We are seeing most banks increase their rates by around 0.1% over the majority of their term periods. Although the Official Cash Rate is firmly grounded, these rates are rising because the sources of the banks’ money are rising. Firstly, deposit rates are rising so that banks can attract more deposits, and, secondly, international interest rates (of which banks pay to get some of their money) are also increasing. These increases are being passed on to us, the homeowners.

 

2. There are noticeable differences between banks

The interest rates that banks are willing to offer their clients are varying between banks. For those banks wanting to "grow their mortgage book", there are some good discounts on rates. The banks that are not discounting are either happy with their current mortgage share or their other “banky type ratios” are at their “banky limits” so they have no wiggle room left—they simply aren't interested in competing on rates. 

Given this variation between banks, the old trick of shopping around and going back to the bank with the other banks’ rates isn't having much of an impact, if any.

If the bank is your "main bank"(generally defined by the fact that your salary or wages are going to that bank) then you will get better rates.

 

3. Banks are giving significantly different rates for investment property loans as compared to owner-occupied loans

The reason for this difference is that new regulations make banks hold more capital for different types of loans. Investment property loans are more costly for the bank and they are passing these costs on.

 

4. Interest-only loans are harder to get

Many banks are only allowing interest-only loans on investment property and then are limiting it to say five years tops. At Velocity Financial we currently need to find highly compelling reasons for banks to agree to interest-only loans on owner-occupied property.

 

5. More now than ever, it is hard to say what a good rate is ...  it depends on all of the above

The above points also mean a good strategy is more individualised than ever. As always though, you fix for certainty—the more certainty you want, the longer you fix (but the higher rate you pay)—and the more flexibility you want, the more you have in some form of floating loan account.

If you are in more of a complex situation with multiple properties, working with us, your accountant and your lawyer, to design the best strategy is increasingly important. To fix or float is just the start! Often we will be working with multiple entities with multiple loan products at multiple banks. We don't want to complicate things for the sake of it, but having this set up correctly can enable our clients to get ahead quicker, to be as well protected as possible and to make significant savings.

If you have a simple set up or need a complex configuration we are happy to work with you to ensure your loan structures are well thought out and optimised for today’s climate.

 

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's the Best Rate?

With not a lot of movement in the world of interest rates, what terms are looking most appealing? Brendon explores.

 

Since last we wrote, interest rates have, on the whole, been static.

 

A good discounted one-year rate (which is the current "low spot" in the interest rate curve) is 4.45 per cent. So, if you want the cheapest rate, take this. But, be warned, if rates go up then in a year’s time, when you come to re-fix, you will be paying a higher rate.

 

A good three-year (discounted) rate is around 5.0 per cent. If you think rates are going to go up (i.e. the two-year rate being higher than 5.4 per cent in a year’s time) then take the three-year rate. During that three-year period you will be better off on average.

 

If you are going to sell your house in a year’s time take the best one-year rate you can find.

 

If you have $100 surplus cash each week, then make sure some of your loan is floating so you can make the most of this extra cash (it could save you heaps).

 

If you are on two incomes now and are planning to drop to one income in a couple of years’ time, make sure your extra funds are saving you interest now, but can be accessed later on if needed.

 

If you have good income but are terrible with your money, you should increase your mortgage payments to enforce regular saving.

 

And, finally, maybe we should just have a chat to give you some advice around this? Give us a bell.

 

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.

 

Are We Too Caught Up On Interest Rates?

Brendon argues that it’s not all about finding the best interest rate.

At Velocity our job is not only to get you the best loan, it’s also to make sure your mortgage is geared to your specific situation in such a way that will have you paying it off faster.

So, on this note, here are a few things to consider:

 

  1. Interest rates aren’t the be-all-and-end-all.

Yes, they matter of course and we will be as competitive as anyone in seeking good rates, however, the difference this makes is only limited.

For example, on a $500k mortgage, a 0.2 per cent difference in interest rates alters the fortnightly repayments by $13.50 a week difference over the life of the loan.

 

2. Smart budgeting can save you bucket loads.

Once you’ve done your budget and you discover you have, let’s say, $75 a week left over after expenses. If you put that $75 a week against a $500k loan you’ll save $100k ($103,596.32 to be precise) and also save six years off your mortgage.

 

3. Maintaining repayments when interest rates drop.

When it comes time to re-fix your loan, let’s say you’re currently paying 5.5 per cent on your $500k loan and your interest rate drops to 4.25 per cent (assuming this is the case for the remainder of your loan). If you keep your repayments the same rather than dropping them as a result of the lower interest rates, then you will save yourself $101,277 in interest, and you will pay off your mortgage seven years earlier. *

 

*Obviously when rates change, you will need to maintain the difference for this to be true.

So, there you go, finding a good interest rate is just one factor to add to the mix of discussion along with smart budgeting and not always opting for the bare minimum when it comes to repayments. As always, we’re more than happy to chat through all these and more options.

 

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.