Mortgage rate discussion Nov 2015

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timmmay

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Topic # 183904 3-Nov-2015 08:53

Mortgage rates have dropped again, so I'm considering my position. I'm 100% floating right now, considering whether to fix for six or twelve months, or of course I can float for a bit longer. Mortgage rates right now with ASB are here, but for ease of access and historical record

Floating 6.00% (but I get a small discount, because I asked)
6 months 4.85%
12 months 4.35%
24 months 4.49%
36 months 4.79%
5 years 5.09%

Fixing for six months gives a moderate saving, but the opportunity to get a lower rate again in six months. Fixing for 12 months give a saving 2.5X as much in my circumstances, with the minor risk of rates rising within 12 months, and another minor risk of opportunity cost of rates dropping a lot soon - unlikely in my opinion. By my calculation fixing six months now again in six months even at 4% doesn't save as much as fixing for 12 months now.

My uninformed opinion / gut feel is rates will fall or stay stable for at least six months, probably pretty stable for 1-2 years, but I'm not sure. It's clear that fixing for 12 months now is a good idea so long as rates aren't likely to rise significantly in the next 12 months.

Any thoughts / opinions?

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Handsomedan

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Reply # 1419494 3-Nov-2015 09:14

I'm considering fixing for two years on a special deal

Like you I'm on 6% as a floater...would be nice to be on 4.35 right now

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timmmay

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Reply # 1419503 3-Nov-2015 09:27

The only risk with two years is rates rising and getting a not so good deal, but it's probably not a big risk. In 6 / 12 months I think the outlook will be a bit more clear.

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jonathan18

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Reply # 1419506 3-Nov-2015 09:32

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One option is to hedge your bets and split your mortgage in to two or more fixed terms, so you could put a proportion on that shorter timeframe of 6 or 12 months, and some on the longer-term rates.

Any prediction as to what rates will and won't do is not guaranteed, and so I guess it depends on the risk you're willing to take - personally I like some assurance I'm not going to be hit by a significant increase in repayments should rates rise and all my mortgage comes due at the same time. Indeed, I'm toying with the idea of fixing the last of our mortgages for a long term (4 or 5 years) as I'm happy being assured of paying no more than 5% over that period (with that rate being, historically, damn low).

Jase2985

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Reply # 1419536 3-Nov-2015 10:08

we have 3 loans

~2/5th fixed for 3 years at 4.69% matures 3 years
~2/5th fixed for 2 years at 5.15% matures 18 months
~1/5th flexi at 5.35% (this is with a corporate package)

good way to hedge your bets

there is no way to know what rates will do in 3 months or 10 years so having multiple loans that mature at different times can buffer you a little from rate increases.

timmmay

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Reply # 1419537 3-Nov-2015 10:08

I do often split it, but more for longer terms. My estimates put 12 month fixing as saving the most (1.5 months payments), splitting 12/6 months at saving 1 months payments, and fixing twice at six months saving anywhere from 0.75 months payments to 1.1 months payments depending on what rates do.

So I guess the only reason not to fix for 12 months is if rates are likely to jump in the next year (unlikely), or if I want to fix longer term in six months when rates could be near their lowest (possible).

I wouldn't fix for long term now, I think rates are still falling and will for another six months at least. The 5 year rate has fallen 0.6% in the past four months.

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GeekRay

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Reply # 1419538 3-Nov-2015 10:08

Hedging is a good idea and that's what we do as well.

You can either fix the rest later at a lower rate or keep the flexibility of paying off a good chunk of it without worrying about penalty.

CYaBro

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Reply # 1419656 3-Nov-2015 11:37

From what I've been told the recommended option at the moment is fix for 6-12 months, go with what you feel gives you the best outcome.
The OCR is still predicted to drop one more time before the end of the year, to 2.5%, but not likely to go any lower than that next year, so mortgage rates will probably drop a bit more.
Will we see a rate below 4%?!

We have some on floating, at 5.99%, and have just recently fixed the rest for 6 months @ 4.5%.

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hangon

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Reply # 1419972 3-Nov-2015 16:09

6 months 4.29%
3 years 4.35%

http://www.propertytalk.com/forum/showthread.php?192-Interest-Rates/page421

wellygary

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Reply # 1420006 3-Nov-2015 16:35

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CYaBro: From what I've been told the recommended option at the moment is fix for 6-12 months, go with what you feel gives you the best outcome.
The OCR is still predicted to drop one more time before the end of the year, to 2.5%, but not likely to go any lower than that next year, so mortgage rates will probably drop a bit more.
Will we see a rate below 4%?!

Only Floating rates are tied to NZ's OCR, Most of the Fixed rates are being funded out of international bond borrowing by the banks and thus is much more linked to global interest rates (ie the US)

Now we have been promised all year that the Fed will start raising rates, but so far it ain't happeneing (mainly due to flash crashes, recurring China Meldowns and Slowdowns, and European jitters)

Picking the bottom of world interst rates is pretty much of a crap shoot as most of the rates offered here are based on where international markets already think rates will go..

timmmay

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Reply # 1420050 3-Nov-2015 17:20

Four months ago on 30th June the ASB 3 year rate was 5.4% and the 5 year rate was 5.65%. Now it's 4.7% and 5.1% respectively. Since then the OCR has come down by 0.5%, but the 3 year rate has dropped 0.7% and the 5 year rate has dropped 0.55%. Given overseas markets have been relatively stable (I think) the OCR does seem to affect longer term rates.

Property talk linked to two articles, interest.co.nz and stuff. The thinking seems to be that the OCR will probably come down either in December or early March next year, but there's debate about whether it will only go down from 2.75 to 2.5 and stop there, or if it'll go all the way to 2%. Lower OCR means lower interest rates, which inflates the housing market, which I think the reserve bank would prefer to avoid. There's also the NZD, which is weakening, apparently lower NZD pushes interest rates up - not sure why, or even if this is completely true.

My guess is that we're not that far off the bottom of the interest rates. I think it'll go down a bit more, but wouldn't be surprised if it goes up after that. That means fixing for a few years probably wouldn't be crazy, and waiting six months may get you a slightly better rate, or a slightly worse rate, but I doubt it will be hugely different.

I'll ponder for a bit longer I think. I may stay floating until the RBNZ announcement in Dec, then potentially fix a spread of 6/12/36 months. BNZ offered someone 4.35% for 3 years, a pretty nice rate.

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mentalinc

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Reply # 1420109 3-Nov-2015 18:26

timmmay: BNZ offered someone 4.35% for 3 years, a pretty nice rate.

Yes but how much borrowing do they have?

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