rates new zealand

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.