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You may recall last month I suggested the sweet spot for refixing your Home Loan was a toss-up between 6 months and 1 year.
This was based on the thinking at the time that rates had peaked and will start to drop within 6months to 1 year.
Yes, the 2–5-year rates are lower, but the above was based on the hope that if you fix “short”, next time you go to re-fix, rates would have dropped, and you can benefit from this.
At time or writing (13/2/24) we are seeing discounted 1-year rates being offered between 6.9%-7.00% and the 6 months rates ranging from 7.00% to 7.25%.
There is no real difference this month, HOWEVER the ANZ economists have lobbed a bit of a grenade on to the playing field and have suggested the Reserve bank will increase the Official Cash rate, not once but twice! This starting on the next announcement on the 28th of February. They are suggesting after this, rates will start to drop off fairly quickly. (To be fair I am not 100% sure if this was a “the Reserve Bank SHOULD increase rates” of if “the Reserve Bank WILL increase rates” kind of a statement)
Other bank economists have come out since then and disagreed with this prediction.
The ANZ thinking is that some of the economic and inflation data is stronger than expected and the Reserve Bank will want to sort this out.
In particular, the unemployment rate came in under the Reserve Bank prediction for the last quarter and combined with “stubborn” parts within the inflation data, would be enough to convince the RBNZ to change their mind.
The other thing that would support the ANZ’s prediction is that the 1–5-year wholesale rates (one option the banks have for sourcing funds to lend on to Home Buyers) jumped up by around 0.4% in the last week. (It is too early to tell if this is a ‘blip’ or a ‘trend’ -but certainly worth keeping an eye on)
I’m not convinced that ANZ has this right. I think that the next OCR move will be down. We will be watching with interest on 28th February to find out, and of course I stand to be corrected! I think it is very possible that the above information may move any decreases in Interest Rates out a little bit, however again, I think it is a little too early to tell.
If the ANZ are correct, you would now be leaning to fix for 1 year. I think this is still a solid decision with the currently available information. Yes, you are paying more than if you fixed for 2 or 3 years, however indications are still pointing to rates being lower in 1 year than they are now.
Don’t rule out the 6-month option. You will have to hold your nerve, and it seems there is slightly more information that this won’t pay if rates nudge up slightly. If they stay the same-then no harm done, and if they start to drop in the next few months you win.
I would say if you fixed for 6 months, you would want to have a little buffer in your weekly cash flow so you know you can afford a little more if the ANZ prediction comes true.
I hope those general thoughts are helpful. Don’t forget your situation is unique. Your mortgage adviser at Velocity is happy to talk you through the options and ensure that you have an individual strategy set up that is best for you.
Brendon.
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.
Disclaimer: 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.
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.