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  Reply # 977400 30-Jan-2014 13:45 Send private message

Yep, my wedding, thanks :)




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  Reply # 977401 30-Jan-2014 13:49 Send private message

Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

NZers used to (still do?) have an obsession with fixed rate mortgages. I guess this is related to the "normal" (in NZ anyway) negative yield curve. It's an easy decision to fix when floating is more expensive AND you expect interest rates to rise anyway. It's more complicated a decision now.

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  Reply # 977403 30-Jan-2014 13:50 Send private message

timmmay: My negotiated floating rate isn't much above 5%, and I'd probably get a 0.5 - 0.75% discount off any rate, fixed or floating.

Paying down early is a good idea, but a wedding got in the way of that idea this year. Those suckers are expensive. Hopefully next year.


how do you negotiate such a big discount?

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  Reply # 977406 30-Jan-2014 13:51 Send private message

hangon: ipredict seems more reliable than some economists who may or may not have vested interests.

The rate is almost certainly going up in March, and may go up 1% by end of year.

It might go up another 1% for next year. If no extraordinary events occur before then. 

It kinda depends on what would happen to our major trading partners in the next few years, and also depends on the rate you can negotiate with your bank, not the advertised rate.

Personally I doubt it would (or needs to) go up more than 2% in the next 2 years, or more than 2.5% in the next 3 years. Sort of inline with RBNZ and some economists.

It was possible to negotiate a floating rate of circa 5% a while ago, if rates goes up gradually by 2% over next two years (25 point per quarter), the average floating rate over the period would be just above 5.875%

If rates goes up another 0.5% in 2016 (assuming 25 points half yearly), the average floating rate over next 3 years would be just above 6.29%

So if now you can fix 2 years under 5.875%, or 3 years under 6.29%, you may save a little interest payment (if OCR rises on track), and trade some flexibility for short/med term certainty. Based on that I don't see myself fixing at above 6.29%

But yes it's kind of crystal ball grazing. It's best to pay down mortgage asap, and diversify your savings.


2 years fixed is on 6.29% and 3 years 6.65% so you think its not worth fixing for those rates? should people just stick to the 1 year for about 5.49% then see what the rates are a year later?


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  Reply # 977420 30-Jan-2014 13:58 Send private message

bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

NZers used to (still do?) have an obsession with fixed rate mortgages. I guess this is related to the "normal" (in NZ anyway) negative yield curve. It's an easy decision to fix when floating is more expensive AND you expect interest rates to rise anyway. It's more complicated a decision now.


Up until the GFC, NZers seemed to mainly fix, but I wouldn't call it an obsession, they did it , because they were paying less in interest, and that was driven by the banks. It also gives people certainty. 
But the current interest rates are artificially and unsustainably low long term, which is one reason they are going to be raising them, as they couldn't stay down there forever. I remember in the 80's when you were paying close to 20% for a home loan, but houses compared to incomes were are lot less back then. If interest rates do rise by a lot, I hope we see house prices come down, as it will affect the maximum amount people will be able to borrow based on their incomes, and that is what has driven the housing market to these very high levels, making home ownership impossible for many.



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  Reply # 977427 30-Jan-2014 14:03 Send private message

bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

NZers used to (still do?) have an obsession with fixed rate mortgages. I guess this is related to the "normal" (in NZ anyway) negative yield curve. It's an easy decision to fix when floating is more expensive AND you expect interest rates to rise anyway. It's more complicated a decision now.


I'll probably pay it off within 5-10 years, so it may be more relevant for me.

joker97:
timmmay: My negotiated floating rate isn't much above 5%, and I'd probably get a 0.5 - 0.75% discount off any rate, fixed or floating.

Paying down early is a good idea, but a wedding got in the way of that idea this year. Those suckers are expensive. Hopefully next year.


how do you negotiate such a big discount?


I asked for a discount. I don't know why I got it, but I have good equity in the house, a track record of a good income, and I get on well with the bank people.

mrphil: 2 years fixed is on 6.29% and 3 years 6.65% so you think its not worth fixing for those rates? should people just stick to the 1 year for about 5.49% then see what the rates are a year later?


If the floating rate rises to 7% by the end of next year the average the average floating rate will be below that. If it keeps going up then 6.65 for 3 years may be an ok deal, but not a big gain. If the floating rate goes to 15% and you fix on 7% that's what I'd consider a big gain.




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  Reply # 977432 30-Jan-2014 14:09 Send private message

joker97:
timmmay: My negotiated floating rate isn't much above 5%, and I'd probably get a 0.5 - 0.75% discount off any rate, fixed or floating.

Paying down early is a good idea, but a wedding got in the way of that idea this year. Those suckers are expensive. Hopefully next year.


how do you negotiate such a big discount?


You have to ask for it. As they say' don't pay the sticker price'. You can save a lot just by shopping around and asking what sort of discount they can give.

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  Reply # 977449 30-Jan-2014 14:18 Send private message

mattwnz: Up until the GFC, NZers seemed to mainly fix, but I wouldn't call it an obsession, they did it , because they were paying less in interest, and that was driven by the banks. It also gives people certainty. 
But the current interest rates are artificially and unsustainably low long term, which is one reason they are going to be raising them, as they couldn't stay down there forever. I remember in the 80's when you were paying close to 20% for a home loan, but houses compared to incomes were are lot less back then. If interest rates do rise by a lot, I hope we see house prices come down, as it will affect the maximum amount people will be able to borrow based on their incomes, and that is what has driven the housing market to these very high levels, making home ownership impossible for many.


umm ... do you know the price of houses in Singapore, Australia, London, Toronto ...?

Over 1 million NZD ... guess where people who can't afford to buy houses there will buy? Auckland.
Guess where people who have lots of money will invest? Auckland
Why will they? Mmm ... let me guess ... Not sure ... but why else would they want to buy 30 farms? Mmm ... not sure ...

bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

NZers used to (still do?) have an obsession with fixed rate mortgages. I guess this is related to the "normal" (in NZ anyway) negative yield curve. It's an easy decision to fix when floating is more expensive AND you expect interest rates to rise anyway. It's more complicated a decision now.


there is a compounding effect so that cannot be true. you are not outplaying banks but time. even the banks do not know what will happen next year.

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  Reply # 977451 30-Jan-2014 14:26 Send private message

timmmay:
bazzer: Long term, I believe it is fruitless to try and outplay the banks. You may come out ahead over some periods but over 15-30 years of your mortgage it probably makes little difference and not really worth worrying about.

NZers used to (still do?) have an obsession with fixed rate mortgages. I guess this is related to the "normal" (in NZ anyway) negative yield curve. It's an easy decision to fix when floating is more expensive AND you expect interest rates to rise anyway. It's more complicated a decision now.


I'll probably pay it off within 5-10 years, so it may be more relevant for me.

Then I would say it doesn't make much difference because the difference in interest you'd pay as you approach the end of your mortgage is again not really worth worrying about. I mean, even if it amounted to $10k (who doesn't want $10k?) that would only be a small fraction (say 5%) of the total paid over 5 years even if interest rates averaged 7% over that period rather than 5%. Also, don't forget that when averaging your interest you probably want to weight against the balance (i.e. lower interest rates now with higher balance matter more than higher interest rates later with a lower balance).

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  Reply # 977466 30-Jan-2014 14:33 Send private message

mrphil: 
2 years fixed is on 6.29% and 3 years 6.65% so you think its not worth fixing for those rates? should people just stick to the 1 year for about 5.49% then see what the rates are a year later?

If you can negotiate a floating rate of close to 5%, then in my personal opinion it's not worth fixing at those rates - on the other hand, if you can negotiate a floating discount of say 74 point, you should be able to get some good discount on the fixed rate as well. Either way, the fixed rate doesn't look very attractive right now.

Considering the interest is likely to go up 2% over next 2 years or so, and it may peak at 2.5% over next 3 years. A good chance of anything bad happens during this time period, it may not even go up that much.

It looks these days you can negotiate almost everywhere. I'm not entirely sure if that's a good thing or bad.

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  Reply # 977470 30-Jan-2014 14:37 Send private message

If the banks are expecting interest rates to rise over the period you are looking to fix, it makes sense that the fixed rate will be higher at the start of the period and lower (or the same) as the floating rate at the end. In most cases if you can get a discount on the fixed rate, you should do it (I fixed for 4 years at 5.9 last November, I figure I will start winning on that deal this year).

Hopefully in about 2-3 years it crests and starts a downward cycle again. The reserve bank wont wat interest rates to go too high, it will overvalue the NZ dollar, which is IMHO already too highly valued. I'm sure most exporters would rather it was at around 70c US.

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  Reply # 977472 30-Jan-2014 14:39 Send private message

joker97: there is a compounding effect so that cannot be true. you are not outplaying banks but time. even the banks do not know what will happen next year.

I disagree. What we're talking about is picking the right time to fix and for how long. The whole point is trying to pay the bank less interest (they would prefer you paid more interest, obviously).

No one can read the future, so the only foolproof way to make sure you pay less interest is to pay more principal earlier. Anything else is just a gamble. For every person who fixes just before the rates go up, there's someone who slept in and gets stuck on the higher rates.

Compare 2-year rolling fixed rates with floating rate over the long term. Historically, there is very little difference in the overall interest paid (you ride the highs and lows) so why stress about it? If you're that good at picking rates and/or timings, why not turn your hand to the share market or forex trading?!

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  Reply # 977482 30-Jan-2014 14:56 Send private message

hangon:
mrphil: 
2 years fixed is on 6.29% and 3 years 6.65% so you think its not worth fixing for those rates? should people just stick to the 1 year for about 5.49% then see what the rates are a year later?

If you can negotiate a floating rate of close to 5%, then in my personal opinion it's not worth fixing at those rates - on the other hand, if you can negotiate a floating discount of say 74 point, you should be able to get some good discount on the fixed rate as well. Either way, the fixed rate doesn't look very attractive right now.

Considering the interest is likely to go up 2% over next 2 years or so, and it may peak at 2.5% over next 3 years. A good chance of anything bad happens during this time period, it may not even go up that much.

It looks these days you can negotiate almost everywhere. I'm not entirely sure if that's a good thing or bad.


thanks for your opinion

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  Reply # 977484 30-Jan-2014 14:58 Send private message

???

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  Reply # 977488 30-Jan-2014 15:03 Send private message

bazzer:
joker97: there is a compounding effect so that cannot be true. you are not outplaying banks but time. even the banks do not know what will happen next year.

I disagree. What we're talking about is picking the right time to fix and for how long. The whole point is trying to pay the bank less interest (they would prefer you paid more interest, obviously).

No one can read the future, so the only foolproof way to make sure you pay less interest is to pay more principal earlier. Anything else is just a gamble. For every person who fixes just before the rates go up, there's someone who slept in and gets stuck on the higher rates.

Compare 2-year rolling fixed rates with floating rate over the long term. Historically, there is very little difference in the overall interest paid (you ride the highs and lows) so why stress about it? If you're that good at picking rates and/or timings, why not turn your hand to the share market or forex trading?!


This seems to be correct.  Looking at historical RBNZ charts for floating / 2 year fixed, there's not even a clear correlation between the difference in rates when there's a trend of rising or falling rates.
Unfortunately, many people seem to have come to expect that inflation (house price inflation in particular) will have the effect of increasing their % equity and become comfortable with the idea of not repaying principal.
It's worked for the past couple of decades - which seems to be all the proof some people need to conclude that it will work forever.

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