interest rates new zealand

Fixed Vs. Floating

fixed vs floating.jpg

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?

financialscales.jpeg

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: What will Labour mean for our rates?

AdobeStock_130671316.jpeg

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.