Introduction

Last week, I attended a mortgage advisers conference. As usual, one of the guest speakers was an economist, armed with a plethora of graphs on various economic matters. During the Q&A, a mortgage adviser asked for the economist’s prediction on what would happen with home loan rates. Fairly predictable stuff so far.

Somewhat flippantly, the economist remarked on the vast amount of time people spend trying to perfect their mortgage structure. His advice?

     

“If it’s got a four in it, you’re doing well. Lock it away, forget about it, and move on to more important matters.”

   

Key Points

While his tone was light, his points were clear:

     
• A mortgage rate with a 4% in front of it is pretty good in the long run.
     
• Interest rates in the 2% and 3% range are very rare and unlikely to return anytime soon—even with some uncertainty ahead. (Yes, it would take another pandemic—but even then, perhaps we’ve learned a lesson from last time.)
     
• It’s not uncommon for rates to be much higher than the 5%, 6%, and even 7% that have stressed us out over the past couple of years.
     
• If you get it about right, you’re doing OK in the long run. (The rest is probably good luck rather than good management.)
     
• There are other areas of your financial life that, if focused on, could make a bigger difference than deciding between a one- or two-year fixed rate. (For example, check out last month’s blog on what to do with extra cash when your home loan rate drops!)
   

Current Market Rates

Right now, the best rates in the market are the one- and two-year fixed rates sitting at 4.99% across most banks. It’s hard to pass those up. My economist friend would agree—but would also add that he doesn’t foresee much more downward movement, particularly in the longer-term rates.

We all agree there might be some short-term nudges down in the one- and two-year rates, so taking advantage of these for the next year or so might be the way to go.

At some point, if those longer-term rates drop and start with a “4,” it might be time to consider locking in for longer. However, it’s going to be a touch-and-go situation as to whether those longer rates make it into the 4% range.

Upcoming OCR Announcement

On 28 May, the next OCR (Official Cash Rate) announcement is expected. (Just for the newbies among our readers: the OCR is most closely correlated to the floating rate and, to a lesser extent, short-term fixed rates.) Most predictions suggest a small drop of 0.25%, bringing the OCR to 3.25%, with potentially one more drop later in the year. A 3% OCR seems to be the bottom most are predicting—though some say it could move a little less. This aligns with the forecast of small nudges down in shorter-term rates.

Like the rest of us, the Reserve Bank will wait and watch to see whether economic recovery begins soon or if further distress leads to lower rates for longer.

Advice for Homeowners

As always, when your fixed rates are due to roll off, have a quick conversation with your adviser. We won’t be as flippant as my conference economist and will take the time to work through the options that suit your specific situation.

However, if it’s got a four in front of it, you might just want to consider locking it in—and moving on with other things in your life.