I interrupt the annual Velocity Christmas office Die Hard debate to bring you advice on whether you should fix or float your home loans. If you make it to the end of this blog, feel free to add your thoughts to that most important of Yuletide moots - is Die Hard a Christmas movie or not?.

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Ok - First things first. The business.

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Here’s my first piece of advice:

“Float” the amount you believe you can pay off before your next fixed-rate rollover date.

For example, if you have a household budget surplus of $100/week and your next fixed-rate rollover is one year away, consider having $5200 on a floating home loan. By using the $100 to pay off the floating loan, your lending will reduce by this amount.

However, not all floating rates are created equal. You must choose a floating product that suits your situation. If there’s even a slim chance you’ll need that $100/week for big-ticket purchases or emergency repairs (or flights, or anything else), ensure you have the ability to access those funds again. Please talk to your adviser before making this decision, and we can work through the best home loan product for you.

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Now, let’s address the fixed part.

‍I suggest considering fixed rates for 1 year to 18 months.

Over the last six months, I’ve shared the mainstream view that interest rates will likely start to drop later in 2024. I had been suggesting that if you want to “pick a rate” based on these predictions, 18 months or 2-year fixed rates were the “sweet spot.” However, I now think 1 year to 18 months is more appropriate. If the economy gets as tough as some predict, you may want to lean towards 1 year, but if inflation remains stubbornly high, perhaps 18 months is better.

If you’re very risk-averse, you might split your loan into a range of fixed-rate periods to lessen your exposure to any changes in home loan payments.

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How much will your refix hurt?

For some, rolling off 1-year fixed rates will mean a small increase. We’re hopeful this may be the last hike in this cycle—despite the Reserve Bank’s recent tough talk about raising rates if inflation doesn’t ease faster. Many believe this talk was to prevent banks from dropping their rates too soon, and I tend to agree. I think there’s a far greater chance the next rate movement will be down rather than up.

For others, the increase will be significant. Those coming off 3-year fixed rates set around 3% will feel the impact. I empathize with you. My advice is to calculate the new repayments well before the rollover date and start planning how to cover the increase. Your adviser is here to help you through this. Please don’t ignore the issue; let’s work through the options together.

Despite some grim news—with high-interest rates, low house prices, and, at least in Wellington, considerable uncertainty about the economy and labour market—it feels like rates are peaking and house prices have bottomed out. It may not be great news this Christmas, but there’s a glimmer of hope for the New Year.

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Back to the annual Velocity Christmas Debate…

And the big question occupying the minds of the Velocity crew this festive season: Is Die Hard really a Christmas Movie?

What do you think? If you are not sure, here are both sides of the debate.

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I don’t have a strong opinion on this, but I do enjoy throwing this particular grenade into the mix and watching the ensuing carnage…

Feel free to let us know your thougths!

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Brendon.

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Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see Brendon’s disclosure statement on our website.

About Brendon:

Hi, I'm Brendon, one of the owners and advisers at Velocity Financial. I have been giving advice on mortgages and insurances at Velocity for around 15 years, and it is great to be able to work with people to achieve their financial goals. Prior to giving money advice I worked as a youth worker and managed teams for a not for profit organisation. I live with my wife and one of my sons (the other one only stays when he needs food) in Berhampore, and if I'm not talking revolving credit accounts I can be found running the trails of Wellington.