I have been a little grumpy over the last few weeks to see banks increasing their fixed home loan rates.

It is now pretty common to see the short home loan interest rates (6 months, 1 year) at 7.?? %, with the longer-term rates not much behind.

Although the Official Cash Rate hasn’t moved for a number of months (and isn’t expected to move until later next year), international wholesale rates, particularly for the 2 years plus rates, have been steadily increasing since May. This gives at least some rationale for the increase in NZ interest rates. It also helps us to realise that much of what happens in the NZ economy is outside our control (despite what the politicians of all stripes would lead us to believe).

What gives me some hope is that at the start of November, the US Federal Reserve announced no change to their version of the OCR wholesale rates. This led to drops in wholesale rates by at least 0.2% across the board.

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I hope this takes the pressure off our home loan rates, but I guess we wait and see.

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Our Advice to Clients

Despite this unexpected “tweak” in rates last month, the advice we are giving our clients really hasn’t changed.

The mainstream economic thinking is that home loan interest rates will start to drop in NZ later in 2024.

This, of course, is so hard to pick as there are so many factors that will change the exact timing.

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Two Strategies

In general terms, I think there are two sensible strategies.

1. Try to pick this drop in interest rates and work it so your fixed rates come due after rates are starting to drop.
2. Hedge your risk and split your loans up into a number of suffixes. Whatever occurs, you will be less impacted than if you have all your home loans changing interest rates at the same time.

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If you follow this blog, you won’t be surprised by this advice - it is very much the same thing we have been saying for a number of months.

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Get Advice

On top of this, though, please talk to us. Your situation is different from everyone else’s. These are some of the differences that will impact the strategy you use:

• The ability of your budget to tolerate increases in interest payments.
• Expected changes to your income and expenses over the next few years.
• What your financial goals are.
• What changes you expect to make to your property (renovating, buying, selling, etc.) over the next few years.

These factors, and others, will determine what the best strategy for you will be when it is time to refix your home loans.

As always, make contact with your Velocity Adviser and we are ready and willing to talk this all through.

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Brendon

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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.