‍There is some upward movement in interest rates overseas, but not much happening here … yet. So, is now a good time to fix or to float? Brendon investigates.

In mid February 2018, there is in fact a little downward movement in short term fixed interest rates.  Here is what I think are “good interest rates” (for an “average-sized” home loan on your own home with 20 per cent deposit):

·      Floating rate: 5.3%

·      1-year fixed: 4.3%

·      2-year fixed: 4.5%

·      3-year fixed: under 5.0%

As I see it, there are a couple of significant forces at play on our home loan interest rates.  Firstly, the international interest rates seem to be rising (which many pick as the main reason for the US share market hiccup on Monday 5 February—rising interest rates mean the value of shares/companies tend to drop). In principle, this is likely to increase our longer term (3- to 5-year fixed) home loan rates.

Secondly, news continues to filter out confirming that inflation in New Zealand seems to be staying low. This would lead one to believe any increases in the OCR are still some time away. In principle, this is likely to keep our floating and short term (1- and 2-year) fixed home loan rates low for a while yet. Right now there is some price competition between banks that have seen small decreases in fixed 1-2 year rates in the last fortnight.

So … should I fix or float?

A good question! It is perhaps better to have a one-on-one conversation about that for your specific situation. However, here are some questions I ask all my clients before we decide on a mortgage structure strategy.

1)    If rates increased by 1 per cent (or 2 or 3) what impact would that have on your ability to repay your home loan?

2)    After paying all your costs, how much surplus do you have at the end of the week (or fortnight/month, if that is how you budget)?

3)    If you have a goal, are you good at saving towards that or would you still spend any money you have in your bank account?

Once we have the answer to those questions, we can start to get a really good home loan structure in place for you.

I can’t tell you what interest rates are going to do. I can pass on what many people wiser (?) than me think, but we can have a good guess and, if we get the structure set up according to the above three questions, you will be well on the way to having the best home loan structure set up 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.