Official cash rate and mortgage options

Forums › Off topic › Official cash rate and mortgage options

1 | 2 | 3 | 4

stevenz

2802 posts

Uber Geek

#977840 31-Jan-2014 09:40

Buzz Bumble:
Geektastic:
Banning foreigners will make little if any difference.

Yep. They need to ban everyone from buying more than the one house they actually live in.

Which would put anyone unable to afford to buy one who would otherwise be renting, out on the street.

@KnightNZ

Geektastic

17943 posts

Uber Geek

Trusted

Lifetime subscriber

#977841 31-Jan-2014 09:43

Buzz Bumble:
Geektastic:
Banning foreigners will make little if any difference.

Yep. They need to ban everyone from buying more than the one house they actually live in.

Better yet, why not have all housing owned by the State and allocated in accordance with your job status?

Special housing for Party Members.

Grey, uniform housing for those working in the Comminz Tractor Factory Number One

And so on.

JimmyH

2886 posts

Uber Geek

#978603 1-Feb-2014 17:59

hashbrown:

+1 You are basically entering into a betting match with a bunch of highly paid economists at the bank. The only way you win is by being lucky.

No, actually, you aren't. The banks retail don't generally bet hugely on interest rate movements. In essence, they tend to price their lending at a margin over what they can borrow the money at. They really don't care much about interest rate levels or whether you fix or float, it's managing their own risk and making sure they collect a margin that they care about. All other things being equal, term deposit rates of 4% and mortgage rates of 6%, or term deposit rates of 8% and mortgage rates of 10%, are pretty much they same to them. As long as they get their 2%.

So, if it's a floating mortgage they tend to base it on a margin over short-term money (90 day bank bills are a common benchmark). 2 year mortgage rates tend to be correlated with 2 year deposit rates, and so on. They don't like big mismatches in the duration of their lending and funding portfolios, because when rates move they can lose big time. Contrary to misconceptions, NZ bank dealing floors don't take large speculative positions. They tend to trade on behalf of their clients (and clip the ticket) or for their own business purposes. One of the key functions of a bank's treasury is to ensure they they don't have too great an exposure to interest rate movements by keeping things in balance.

That's why you will sometimes see specials on term deposits or fixed mortgages of a particular length. It's because the bank has realised that it has a mismatch between its borrowing book and it's lending book, and is willing to take a hit to remove the risk.

(disclaimer - I don't work for a bank, have simplified this quite a bit, and its a long time since I have had anything to do with this).

timmmay

20581 posts

Uber Geek

Trusted

Lifetime subscriber

#986412 12-Feb-2014 21:25

I'm still considering this. I figure if I fix for three years now, the general recommendation, I'll come out near what's meant to be the peak of the market, which it could stay at for 3 months or 3 years. On the other hand if you wait a year or two to fix you might catch it on the way down again.

If I make some forecasts of where I think interest rates are going are there any tools or techniques that will help me work out the average interest rate paid?

Or should I just stop overthinking it and fix before the rate rise in March?

mattwnz

20164 posts

Uber Geek

#986433 12-Feb-2014 21:49

timmmay: I'm still considering this. I figure if I fix for three years now, the general recommendation, I'll come out near what's meant to be the peak of the market, which it could stay at for 3 months or 3 years. On the other hand if you wait a year or two to fix you might catch it on the way down again.

If I make some forecasts of where I think interest rates are going are there any tools or techniques that will help me work out the average interest rate paid?

Or should I just stop overthinking it and fix before the rate rise in March?

Articles I have read from financial experts suggested fixing last month, because rates are going up. But at the end of the day it is up to you and what your financial expert says.

Batman

Mad Scientist
29766 posts

Uber Geek

Trusted

Lifetime subscriber

#986487 12-Feb-2014 22:25

timmmay: I'm still considering this. I figure if I fix for three years now, the general recommendation, I'll come out near what's meant to be the peak of the market, which it could stay at for 3 months or 3 years. On the other hand if you wait a year or two to fix you might catch it on the way down again.

If I make some forecasts of where I think interest rates are going are there any tools or techniques that will help me work out the average interest rate paid?

Or should I just stop overthinking it and fix before the rate rise in March?

there is a tool.it's called a crystal ball.

I think you shouldn't fix everything at 3yrs. if i were you i'd go 1/3 3yrs 1/3 1yr or 6 mths 1/3 floating.

but it's up to you as i also do not have a crystal ball. i cannot see the OCR skyrocketting as our dollar will then be as valuable as the euro and the farmers will shoot the cabinet.

hashbrown

463 posts

Ultimate Geek

#986501 12-Feb-2014 22:58

timmmay: If I make some forecasts of where I think interest rates are going are there any tools or techniques that will help me work out the average interest rate paid?

Don't worry so much about the interest rate as the total amount paid. e.g. if on a low interest rate now, it could mean you pay off more of the principle, meaning either lower repayments or faster payment of the principle later on, that would somewhat compensate for the higher interest rate.

Check out the tools at http://interest.co.nz Pretty sure they had a fix or float calculator that did something like what you are after.

Edit - punctuation

Sharesies

Trade NZ and US shares and funds with Sharesies (affiliate link).

surfisup1000

5288 posts

Uber Geek

#986520 12-Feb-2014 23:58

joker97:

My pick is OCR stays flat until the NZD is fixed.
NZD trumps housing and inflation because our country relies on export to survive.

.

I disagree. Why is the NZD being high currently a problem? I would agree if our exporting industry was going bankrupt but it is not and manufacturing and exports are doing better than ever.

Inflation is the greater evil.

timmmay

20581 posts

Uber Geek

Trusted

Lifetime subscriber

#986536 13-Feb-2014 07:20

mattwnz: Articles I have read from financial experts suggested fixing last month, because rates are going up. But at the end of the day it is up to you and what your financial expert says.

I know, but I didn't do that.

joker97: there is a tool.it's called a crystal ball.

I think you shouldn't fix everything at 3yrs. if i were you i'd go 1/3 3yrs 1/3 1yr or 6 mths 1/3 floating.

but it's up to you as i also do not have a crystal ball. i cannot see the OCR skyrocketting as our dollar will then be as valuable as the euro and the farmers will shoot the cabinet.

I have my own predictions about what's going to happen, which are certainly wrong, but better than no model at all.

I wouldn't fix it all, I have some floating that has to stay floating because I'm a contractor - I need flexibility. I like your suggestion, i'm thinking 1/2 at 3 years, 1/4 floating, 1/4 at 6 months - 1 year. I'll just have to work out what proportions I'm comfortable with.

Geektastic

17943 posts

Uber Geek

Trusted

Lifetime subscriber

#986600 13-Feb-2014 09:33

surfisup1000:
joker97:

My pick is OCR stays flat until the NZD is fixed.
NZD trumps housing and inflation because our country relies on export to survive.

.

I disagree. Why is the NZD being high currently a problem? I would agree if our exporting industry was going bankrupt but it is not and manufacturing and exports are doing better than ever.

Inflation is the greater evil.

Don't forget the effect of a high dollar on tourism.

My American clients complain bitterly about it. Part of the problem is that things cost a lot here anyway so perceived value for them is poor (e.g. a basic clean motel chain like Motel 6 costs around US$60 per night whereas the nearest comparable here, Bella Vista, costs at least double) but it is exacerbated by the exchange rate, which is driven by the fact that in world terms our interest rates are very high still.

hangon

397 posts

Ultimate Geek

#986894 13-Feb-2014 17:38

mattwnz:
Articles I have read from financial experts suggested fixing last month, because rates are going up. But at the end of the day it is up to you and what your financial expert says.

Only if my financial expert would pay for my losses following their advice.

Many of them have been saying the rate will go up for what, more than 4 years now?

I only fixed because it's lower than my discounted float, which appears to be harder to negotiate (of course), and have as much as I could pay off on revolving credit.

I'm still doubtful the rate could go up 2% in next 2 years. But if I could stick with my plan paying off the floating, I'd be better prepared by the time my fix term ends.

The rate to pay off your mortgage is more important. And if certainty is important and you do want to fix, keep some on floating and pay them off asap. my 2 cents.

timmmay

20581 posts

Uber Geek

Trusted

Lifetime subscriber

#987118 14-Feb-2014 08:05

Tony Alexander's weekly commentary is out, here. He's still picking the OCR to go up by 1.25% by the end of the year, but doesn't seem overly confident about what will happen after that.

I still suspect I will fix some significant proportion for 3 years, some for 12 months, and leave some floating.

Batman

Mad Scientist
29766 posts

Uber Geek

Trusted

Lifetime subscriber

#987120 14-Feb-2014 08:10

I stopped reading his commentary in 2011 when he predicted interest rate rise since 2009 and asked people to fix and I had enough in 2011 and cut the umbilical.

Of course eventually he will be correct. What goes down must come up and vice versa. I have no faith in economists and meteorologists. Might as well ask a fortune teller.

1 | 2 | 3 | 4