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As a mortgage adviser, I thought February was “excitement personified” when long-term fixed Home Loan rates became cheaper than the short-term rates.

That was only a teaser to the exhilaration of late February, however, when an interest-rate war started between the banks.

Banks have been writing less home loans over the past few months as demand for lending has slowed. So, one bank launched a sneaky “quiet/unofficial” campaign with a 4.99% 1-year rate for new lending to attract more home loan borrowers.

As you can imagine, this caused quite a stir in the property sector, and social media was a-buzz! I had multiple phone calls each day for a few weeks with mortgage clients enquiring about taking advantage of this special lending offer.

This particular bank’s turnaround time went from 3 days to 10 days. As the mortgage applications flowed in, it was evident that their campaign to increase their lending volume obviously worked. So, well done them on their clever ploy.

While there were stories of other banks matching this rate, that wasn’t always the case. There was, however, home loan rates discounting occurring across the board between the banks, who were keen to get more lending business through the door.

At time of writing, the initial Battle of the Banks seems to be simmering down and rates discounting is currently off the table. Time will tell if it picks up again. Given the low mortgage application volumes at the moment, I expect there may be some more rates discounting to come. For now, though, a truce has been called - which doesn’t help you, if you are about to refix your Home Loan.

So, what do you do…

Let us put aside for now the potential for outbreaks of the aforementioned battle and assume some sort of normality.

Pick the right fixed term based on what we know, today.

I think 18 months to 2 years is the “Sweet spot” to fix a good portion of your Home Loan. Some would argue 1 year, and some of would argue longer. To be honest, we just do not know when interest rates will peak and then start to decline. Most economists are still picking 1-yearfixed rates to be slightly higher in a year than they are now, which is why I think fixing for a little longer than that is an option to be considered.

Split your loan up, so all your eggs aren’t in the same basket.

In our uncertain world, splitting your loan over 2 or 3 different fixed periods can help protect you from the big change in payments you may otherwise by faced with, if it was all lumped in together. Consider the possibility of using more than one bank as well.

Calculate your risk over reward for breaking a fixed term.

If you are only planning to refix for a short term (say 2 years or less), it is unlikely you will be better off to break a lower rate to get a new one before rates go up. Based on the best mainstream “guesses” of what interest rates will do, the loss you will make with a higher rate now will often be more than the savings you will make IF rates are higher when your loan would have rolled off its fixed rate. If this is confusing, make a time to talk with us.

Prepare now for higher rates.

All signs are pointing to fixed rates getting close to the top of the cycle. So do not panic. In saying that, even at current rates your payments will be higher, and in some cases WAY higher. Read here to get Velocity’s tips on how to manage these increases.

Talk to your mortgage adviser.

Every situation is different. Before you refix, get independent financial advice.

Brendon.

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Book a time for a chat with one of our advisers here.

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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.

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