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Gurezaemon

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#258534 8-Oct-2019 17:13
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Hi all.

 

I'm due to be renewing my mortgage, and as it appears that the rates are pretty low now, I'm tempted to lock in a 5-year fixed 4.49% rate, instead of going for a 2-year fixed rate of 4.09%. 
We don't anticipate selling within the next 5 years, and I think it pretty unlikely that we'll be able to pay it off early.

 

Thoughts? Advice? Should I expect the current rates to stay low for the next couple of years, and therefore lock in a lower 1- or 2-year rate with the expectation of doing the same again when it's term is up?


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Talkiet
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  #2332883 8-Oct-2019 17:37
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Split the mortgage until multiple components... Have some of it coming off fixed every 12-18 months. 

 

That way you can have most of it on the best rate and be insulated from any large changes hitting suddenly.

 

I have 4 different components including an RCA... Works well.

 

Cheers - N

 

 





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Please note all comments are the product of my own brain and don't necessarily represent the position or opinions of my employer, previous employers, colleagues, friends or pets.


nathan
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  #2332917 8-Oct-2019 18:36
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Interest rates are only heading one way. Down.




populism, the most important and misunderstood movement of our time


 
 
 
 


zyo

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  #2332973 8-Oct-2019 19:37
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Gurezaemon:

 

Hi all.

 

I'm due to be renewing my mortgage, and as it appears that the rates are pretty low now, I'm tempted to lock in a 5-year fixed 4.49% rate, instead of going for a 2-year fixed rate of 4.09%. 
We don't anticipate selling within the next 5 years, and I think it pretty unlikely that we'll be able to pay it off early.

 

Thoughts? Advice? Should I expect the current rates to stay low for the next couple of years, and therefore lock in a lower 1- or 2-year rate with the expectation of doing the same again when it's term is up?

 

 

Wut, you are paying 4.09 on 2 years? I just fixed my mortgage not long ago and it was 3.55@1 year

 

"Spring cleaning" as they say is going to bring the rates down even further. I dont see this change within the next 2 years so I wouldn't fix at 4.49 at all.

 

 

 

My strategy:

 

Short term: fix 1 - 2 years and get the best interest rate available, save and pay lump sum once the fixed term is up rinse n repeat.

 

Medium term: Get a broker who can compare/negotiate maximum cash back from multiple banks (we got 6k last time switching from ANZ to ASB) and switch after your lock in period is finished.


networkn
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  #2332974 8-Oct-2019 19:41
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As Talkie said, break your mortgage into smaller chunks spread over time periods. Having on revolving credit too, allowing for unexpected large spend coverage and also unexpected windfall to allow you to pay it back earlier without penalty. 

 

We know approximately how much we can pay off each year, so we have about that amount give or take into yearly mortgages. 

 

 


Handle9
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  #2332978 8-Oct-2019 19:52
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The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

The one thing you should do is go to the market. You'll need to invest about 10 hours, or get a broker to do it for you. You can play the banks off against one another and then give your current bank the right to match the best deal you get. Often they will match, or at least get close enough that it isn't worth leaving.

 

I've always been really transparent with my bank that I expect them to meet the market and I've only changed twice in 15 years.


zyo

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  #2332979 8-Oct-2019 20:01
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Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

The one thing you should do is go to the market. You'll need to invest about 10 hours, or get a broker to do it for you. You can play the banks off against one another and then give your current bank the right to match the best deal you get. Often they will match, or at least get close enough that it isn't worth leaving.

 

I've always been really transparent with my bank that I expect them to meet the market and I've only changed twice in 15 years.

 

 

 

 

Exactly, I dont understand the averaging technique as having smaller chunks maturing at different dates makes it almost impossible to switch bank if the current lender is no longer competitive.

 

As I mentioned if you got good credits the cash back banks offer when you switch can be substantial, even if you don't plan to switch, it might pay to ask your current lender to offer some cash incentive in exchange for a lock-in period.


Handle9
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  #2332985 8-Oct-2019 20:05
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zyo:

 

Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

The one thing you should do is go to the market. You'll need to invest about 10 hours, or get a broker to do it for you. You can play the banks off against one another and then give your current bank the right to match the best deal you get. Often they will match, or at least get close enough that it isn't worth leaving.

 

I've always been really transparent with my bank that I expect them to meet the market and I've only changed twice in 15 years.

 

 

 

 

Exactly, I dont understand the averaging technique as having smaller chunks maturing at different dates makes it almost impossible to switch bank if the current lender is no longer competitive.

 

As I mentioned if you got good credits the cash back banks offer when you switch can be substantial, even if you don't plan to switch, it might pay to ask your current lender to offer some cash incentive in exchange for a lock-in period.

 

 

It works well in a volatile market as it insulates you from rapid rate rises. IMO in the current ultra-low interest rate environment it's not so effective.

 

Things can change quickly though so there is definitely a risk.


 
 
 
 


timmmay
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  #2333018 8-Oct-2019 20:31
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My opinion, which is based on observation but absolutely no qualifications or such, is that mortgage rates will stay very low / get lower for the next 2-3 years at least. Right now we go for the cheapest rate, which is usually 1 year. We do have it split, with a bit on 2 / 3 years but as it comes off that we move it to one year. If global conditions change to look more positive I'll then start fixing for longer periods.

 

I've also got my kiwisaver on a fairly conservative plan right now. I'm not sure we'll see a big recession, but I think things will keep sliding, then when they look like they're settling I'll go back onto the growth plan having a bit more capital.


bazzer
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  #2333021 8-Oct-2019 20:36
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For a start, 4.09% is way too high. I just fixed 2 years at 3.45% so you should be able to get better than what you are.

 

Are you happy paying 1% more for the next two years, with the possibility that for three more years after that you might have a good rate? Only you know the answer to that. Every time I've locked in for more than 2 years I've been disappointed but it's been a long time since we've been in a climate of significantly rising interest rates.


zyo

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  #2333022 8-Oct-2019 20:37
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Handle9:

 

zyo:

 

Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

The one thing you should do is go to the market. You'll need to invest about 10 hours, or get a broker to do it for you. You can play the banks off against one another and then give your current bank the right to match the best deal you get. Often they will match, or at least get close enough that it isn't worth leaving.

 

I've always been really transparent with my bank that I expect them to meet the market and I've only changed twice in 15 years.

 

 

 

 

Exactly, I dont understand the averaging technique as having smaller chunks maturing at different dates makes it almost impossible to switch bank if the current lender is no longer competitive.

 

As I mentioned if you got good credits the cash back banks offer when you switch can be substantial, even if you don't plan to switch, it might pay to ask your current lender to offer some cash incentive in exchange for a lock-in period.

 

 

It works well in a volatile market as it insulates you from rapid rate rises. IMO in the current ultra-low interest rate environment it's not so effective.

 

Things can change quickly though so there is definitely a risk.

 

 

 

 

Quite a lot of OECD countries have had lower interest rate than NZ for a long time now, I wouldn't say our current OCR is unsustainable. If Labour is re-elected we might continue to see the current downward trend (low interest rate as a tool to stimulate/counter low business confidence)

 

It's hard to predict what the interest rate is going to be in 5 year's time, but looking at historical mortgage rate, year over year change seem to be within 1% range (https://www.interest.co.nz/charts/interest-rates/mortgage-rates). So if things escalate you have the flexibility to fix for a longer term (still wouldn't go over 2 years though.).


blackjack17
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  #2333065 8-Oct-2019 20:44
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Gurezaemon:

 

Hi all.

 

I'm due to be renewing my mortgage, and as it appears that the rates are pretty low now, I'm tempted to lock in a 5-year fixed 4.49% rate, instead of going for a 2-year fixed rate of 4.09%. 
We don't anticipate selling within the next 5 years, and I think it pretty unlikely that we'll be able to pay it off early.

 

Thoughts? Advice? Should I expect the current rates to stay low for the next couple of years, and therefore lock in a lower 1- or 2-year rate with the expectation of doing the same again when it's term is up?

 

 

 

 

We have been offered 3.49% for 2 years and are negotiating for better. 4.09% sounds really high.  Are you going through a broker?





jonathan18
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  #2333085 8-Oct-2019 22:09
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Remember, there is inevitably a different and higher set of rates for low equity mortgages - I’ve hit this before, wondering why a friend’s rates were so much higher than mine. That could explain the relatively high rates being quoted above.

 

This is pretty obvious if you check this out: https://www.interest.co.nz/borrowing

 

 


Handle9
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  #2333094 8-Oct-2019 22:13
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zyo:

Quite a lot of OECD countries have had lower interest rate than NZ for a long time now, I wouldn't say our current OCR is unsustainable. If Labour is re-elected we might continue to see the current downward trend (low interest rate as a tool to stimulate/counter low business confidence)


It's hard to predict what the interest rate is going to be in 5 year's time, but looking at historical mortgage rate, year over year change seem to be within 1% range (https://www.interest.co.nz/charts/interest-rates/mortgage-rates). So if things escalate you have the flexibility to fix for a longer term (still wouldn't go over 2 years though.).



I would generally agree that is the most likely scenario but it comes down to your appetite for risk. It's totally irresponsible not to point out both sides of the coin, especially if the OP was heavily leveraged or had an insecure job etc.

Geektastic
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  #2333096 8-Oct-2019 22:15
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When it hits 1%, fix it for 30 years if you can! My brother in the USA has a 30 year fix at 3.1%






jonathan18
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  #2333131 9-Oct-2019 05:54
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Yeah, where does this hugely different approach come from? Generally 5 years seems to be the max term available here, whereas it seems common in the US for the rate to be fixed for the full length of the loan.

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