low interest rates

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.