Here are the facts (at time of writing 29/9/22)

A 1-year discounted fixed rate Home Loan is around 5.4%

The OCR (Official Cash Rate-set by the Reserve Bank of NZ) is at 3.00%, predicted to go up another 0.5% on Oct 5 and 0.25% on Nov 23 (at time of reading you can see if all the experts guessed right)

‍This figure can have a big impact on the floating interest rate-and lesser impact on fixed Home Loan rates.

‍Government “cash rates” around the world are going up (the US put theirs up by 0.75% last week -which was one factor that led to an increase in the US Dollar, compared to pretty much the whole of the rest of the world.)

Wholesale rates are also up (the rates banks can “buy” their money at are back at the levels they were in June, after a bit of a dip.  

This is likely to impact fixed Home Loan rates -and particularly the longer-term rates.

‍

Here is what I think

These factors would all suggest fixed rates are going to keep nudging higher.  The 1-year fixed Home Loan rate went up by around 0.5% in the last couple of weeks -and we could see some more of this.  At time of writing most commentators are still predicting 1-year rates to peak at around 6% (and stay there for some time) and then start to come down. Longer term rates are likely to sit higher than this.

What should you do?

It depends.  Tell me what the next few years look like for you?  

Do you expect any change in circumstances (pay increase, new job, self-employment, bigger family, drop in expenses, etc)

• How much surplus cash do you have in your week-to-week budget?
• What are you goals and plans for the next 10 years?

Once we know that we can formulate a plan and come up with the right option.

Given some of the above facts, I would lock in sooner than later.  

The 1-year fixed rate is the cheapest option for now but is likely to roll off somewhere near the peak of the market, meaning even more possible cost in a years’ time.

‍

I would be surprised if paying the extra premium for a 5-year rate is going to save you money in the long run (i.e., most are assuming rates will be starting to drop in 3 years or less).

‍

Do give your adviser at Velocity a quick call before you decide.  The banks are now making it easy to refix online, but we would always advocate that you get some advice before doing this.  There may well be a better option.

‍

Brendon.

‍

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.

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.

‍

‍