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(Time of writing: June 23rd)
There is so much economic information being thrown at us in the media it is very hard to
know what is going on and what to do with your Home Loans.
Here are some examples:
Reserve Bank predictions
There are predictions of three Reserve Bank OCR increases in the next 3 meetings (starting at the next meeting on July 8th).
Oil prices and inflation
Oil prices have pushed inflation up, although at the time of writing (22nd June) prices have dropped from their highs with some hope of oil supply opening up. How long this will last for is really a guessing game.
What's happening overseas?
Donald Trump is 'encouraging' US interest rates to drop, although US inflation figures and some relatively strong labour figures suggest US interest rates might increase.
The New Zealand economy
The NZ economy is still in the doldrums (with the exception of the farming sector), so an increase in interest rates will hurt an already struggling economy.
Before the oil shocks this year, there were increasing signs of economic recovery, but those have since stalled.
A positive move from Westpac
Westpac decreased their 3, 4 and 5 year rates last week, the first decreases this year.
The wholesale rates for these lending terms have also been decreasing lately, although not so much for the 1 or 2 year periods.
Here are my thoughts as you ponder your Interest rate strategy on your Home Loans:
Lock in when you can
Despite the Westpac move this week, I still think there is a greater chance that interest rates will go up than down -particularly the floating and shorter term rates. If this is the case, lock a new rate in as soon as you are able (this will be somewhere between 45 and 60 days before your current fixed rate expires)
Looking for certainty?
If you need certainly, fix for 3 years (my personal opinion is that 5 years is a long time, and a lot can change (selling houses, moving for work, relationship changes, etc, etc) so in the current environment to lock in for 5 years, you would need to be very certain of what will occur in that time period, and certainty of payment would need to be very important to you.
Consider splitting your loan
In a world of much uncertainly hedging your risk by having your Home Loans split between different fixed terms is certainly worth considering. Having some of your loan on shorter periods, does give you the ability to make adjustments without risk of penalties.
In summary, I think we should expect rates to rise from here. The speed and size of these increases is incredibly hard to predict right now.
Need some guidance?
Do talk to your friendly Velocity Mortgage adviser.
We will ask a few questions to understand your unique situation and your plans for the next few years, and help you come up with a strategy to optimise your financial position.
Book a 15 -minute call with our team to find out how we can help you with your mortgage strategy.
Brendon.
Brendon Ojala (FSP119244) is a Financial Adviser with Velocity Financial (FSP95466). No financial decision should be taken based on the information in this blog alone. Please see our 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.
Always get professional advice
The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation. As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures:
https://www.velocityfinancial.co.nz/disclosure-statement.