Official cash rate and mortgage options

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timmmay

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#139179 30-Jan-2014 12:02

So the OCR and hence the floating mortgage rates are staying the same this month, though the reserve bank have indicated it will likely rise in March. The forecasts are floating mortgage rates will rise from around 5.75 now to around 7% by the end of the year. Fixed rates have already gone up in anticipation. Beyond that is anyone's guess. I also read a comment that as fixed mortgage rates are rising already perhaps they may need to raise the OCR less, so floating mortgages may rise less.

What are everyone's strategies for their mortgages? Float, fix, or a bit of both and different fixed terms? If floating goes up to 7% and sticks then staying on floating wouldn't be so bad, as fixed rates aren't far off that already. You also have to take into account that if you fix now for 36 months at 6.6% what would the average rate you'd be paying over that period if you were floating, and what's the rate likely to be when you come off that fixed term?

Right now I'm floating, I saved a lot of interest by breaking out of a fixed term just before the rates took a dive. I don't see much point of fixing for less than three years, as I think the average rate I'd pay could be less on floating. If I go to 4 years that's 7%, which may or may not be less than the average floating rate between now and then.

I guess it's crystal ball gazing, but interested in everyone's thoughts.

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#977290 30-Jan-2014 12:22

They should have really raised it this time IMO, as their isn't really any reason to keep it artificially low for any longer. I heard a financial expert suggesting that people may want to now move to fixed. But it is something people need to get expert advice for, for their situation. People with mortgage should have anticipated that rates will go up and made sure that they can afford to keep up payments at a higher rate. I suspect that many people who purchased an overpriced Auckland house will be feeling the pinch if interest rates rise too much. But no one knows how high they could go . Some say 8 percent, some say higher.

vexxxboy

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#977301 30-Jan-2014 12:35

Fixed mine last year for 2 years so it looks like that will pay off but when i took out my mortgage it was around %11 so still a long way back to that.

Common sense is not as common as you think.

Behodar

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#977302 30-Jan-2014 12:35

I have about half and half, although at the moment my fixed and floating are both at 5.55%. It sounds like the faster I pay off the floating, the better!

timmmay

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#977311 30-Jan-2014 12:46

My first mortgage was around 8%, then rates went up, I broke out while it was on the way down but still above my fixed rate and made out like a bandit - saved heaps.

Bit hesitant to fix now as the fixed rates are a fair bit higher than my discounted floating rate. Once rates start going up fixed goes up pretty quickly though.

I suspect I will end up partly fixed, partly floating, the only question is when to fix. Rates rises won't provide any hardship for me, it's more of a game to try to end up paying as little as possible.

geekiegeek

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#977316 30-Jan-2014 12:53

spilt it up. work out what you can pay off in say a year or even 2 and leave that on floating. Split the rest over longer term say 3 year and 5.

That way you pay a chunk off at the current low floating rate and lock in the rest at a good rate also.

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#977331 30-Jan-2014 13:03

The reserve bank and the chief economists have said OCR rise since about 5 years ago did you realise that?

The NZ dollar is so strong I don't think the OCR is going up any time soon. The appropriate response is to lower the OCR, but this is not possible because of inflation and the overheated housing market.

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

However as long as there is interest in borrowing the fixed interest rates will rise so they can make more money. This statement is my personal belief. The official answer is fixed interest rates depends on borrowing costs from overseas (the banks borrow from offshore and sells the money to you).

I am no economist but economists are never any good at predictions. Ever.

timmmay

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#977332 30-Jan-2014 13:05

For me as a contractor it's a given that a significant amount has to stay on revolving credit/floating, I most often keep that around the zero mark, if it goes above $10K with no expenses in the near future I pay off a chunk of the other part.

If I put 1/3 on 3 year and 1/3 on 5 year that would be 6.6% and 7.2%. If the floating rate only gets to 7% then I'd have lost money doing it that way, as the average floating rate is below the fixed rate. If the floating rate gets up to say 8% or 9% then I'd come out ahead.

Over the past 12 years the average rate appears to be around the 8% mark. If you include the 90s then it's a couple of % higher. If history is a good guide toward future rates, which I'm not sure it is right now, fixing would be right. The world economy seems different.

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hangon

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#977335 30-Jan-2014 13:08

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.

Buzz Bumble

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#977347 30-Jan-2014 13:14

timmmay:
So the OCR and hence the floating mortgage rates are staying the same this month, though the reserve bank have indicated it will likely rise in March.

D'oh!! That's good for those with mortgages, but bad for those of us with term deposits. :-(

I have a couple of Term Deposits I luckily (and peculiarly since I usually only do short term ones) put in for 5 years, so got 6.25% just before everything nose-dived. Now that it's coming up for renewal in May, the rates are a paltry 3%. If the rates don't go up soon I might have to start looking for a proper job.

mattwnz

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#977349 30-Jan-2014 13:14

timmmay: My first mortgage was around 8%, then rates went up, I broke out while it was on the way down but still above my fixed rate and made out like a bandit - saved heaps.

Bit hesitant to fix now as the fixed rates are a fair bit higher than my discounted floating rate. Once rates start going up fixed goes up pretty quickly though.

I suspect I will end up partly fixed, partly floating, the only question is when to fix. Rates rises won't provide any hardship for me, it's more of a game to try to end up paying as little as possible.

I suggest watching last nights Paul Henry show, as it had Martin Hawes on it, who had some suggestions on this topic

timmmay

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#977351 30-Jan-2014 13:17

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.

mattwnz

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#977356 30-Jan-2014 13:18

Buzz Bumble:
timmmay:
So the OCR and hence the floating mortgage rates are staying the same this month, though the reserve bank have indicated it will likely rise in March.

D'oh!! That's good for those with mortgages, but bad for those of us with term deposits. :-(

I have a couple of Term Deposits I luckily (and peculiarly since I usually only do short term ones) put in for 5 years, so got 6.25% just before everything nose-dived. Now that it's coming up for renewal in May, the rates are a paltry 3%. If the rates don't go up soon I might have to start looking for a proper job.

You can get 4% on call with some banks. But they are still quite low, and after tax, it would barely cover inflation.
I would have thought that if financial experts are saying now is a good time to fix home loans, then wouldn't the reverse apply for savings. eg Wouldn't it be better to have savings at the moment on call instead, to benefit from the rising rates? Sounds like you have timed your TDs quite well and would have benefited from them rising the OCR today.

hangon

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#977360 30-Jan-2014 13:23

Buzz Bumble: I have a couple of Term Deposits I luckily (and peculiarly since I usually only do short term ones) put in for 5 years, so got 6.25% just before everything nose-dived. Now that it's coming up for renewal in May, the rates are a paltry 3%. If the rates don't go up soon I might have to start looking for a proper job.

should have bought a couple of properties in Auckland central ;)

and then you can comfortably retire now.

mattwnz

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#977363 30-Jan-2014 13:24

hangon:
Buzz Bumble: I have a couple of Term Deposits I luckily (and peculiarly since I usually only do short term ones) put in for 5 years, so got 6.25% just before everything nose-dived. Now that it's coming up for renewal in May, the rates are a paltry 3%. If the rates don't go up soon I might have to start looking for a proper job.

should have bought a couple of properties in Auckland central ;)

and then you can comfortably retire now.

Or Xero shares when they were under a dollar each, now over $40.

hangon

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#977372 30-Jan-2014 13:29

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.

Likewise, i fixed the big chunk for 1 year under 5% towards end of last year, left some on revolving credit to be paid off this year. I doubted the rate would go much higher this year, but I'll review my options by end of the year.

Is it your wedding, or one of your family members? Congratz! Money spent on experiences and memories are worth it.

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