Posts Tagged ‘Fix or Float’

Mortgage Interest Rates 2011 – Fix or Float?

Mortgage interest rates and what they are doing is always something to be aware of when you have, or are thinking about having, a home loan. Forecasts for home loan interest rates can change quickly so it pays to keep an eye on interest rates on a regular basis – especially if you are looking at buying a house, have a variable rate mortgage (or floating rate mortgage), or have a fixed term mortgage about to come off its fixed rate.

There is agreement amongst NZ economists that given current economic information interest rates will be going up sometime in the next 12 months. At the moment (March 2011) most major NZ banks economists are forecasting that interest rates will have increased by 1%, 2 years from now. How and when this increase will occur is predicted slightly differently bank to bank. Most banks are not expecting a variable mortgage interest rate rise (as a flow on effect from an increase in the OCR) until somewhere between June and September 2011 and a few banks are even suggesting that the OCR will stay unchanged until early 2012.

Given current predictions most economists are recommending to keep your borrowing on a variable or floating rate for now.

Remember though – fixed interest rates will increase well before the OCR goes up – as soon as banks economists are surer about when they think rates will increase they will start factoring this into fixed rates. So if you are looking at fixing eventually – keep a close eye on the fixed rates and economic commentaries over the next few months. And as a general rule – when you do fix - try to fix for no longer than 2 or 3 years.

Major happenings - like the Christchurch earthquake can change interest rate forecasts overnight. This event has decreased the chance of an interest rate rise in 2011 significantly and we may even now see interest rates go down.

Want to find out more about the OCR – we talk all about it in our Propertytoolbox Blog article – ‘The OCR and your home loan interest rate’.

The guys at have put together a good summary of what the chief economists of the big retail banks in NZ are predicting regarding mortgage interest rates this year. Check out the article ‘Where mortgage rates and term deposit rates are headed over the next year or two and why’.

Do you want to see for yourself what the banks economic experts are saying? Here are some useful links:

BNZ Weekly Overview

Westpac Economic Reports & Latest Economic Overview

National Bank Economic Forecasts

ASB Economic Media Centre

Kiwibanks Economic News

ANZ Economic Markets & Research – Property Focus

At Propertytoolbox we have some advice and tips on how to make your fix/float decision. If you are after info on just what fixing and floating is - check out our structuring your home loan advice.

The Propertytoolbox Blog will be coming to you monthly in 2011 - on the first Tuesday of the month. So keep us bookmarked or in your RSS feed for relevant NZ house buyer's information!

The OCR & Your Home Loan Interest Rate

The Official Cash Rate (OCR) has been prominent in the news lately. That is because in the last 7 weeks it has gone up twice after staying unchanged for a year - it is now at 3.0%. What does this all mean? Well in a nutshell – if the OCR goes up, your home loan interest rate is likely to go up. But usually it is too late once the announcement is made to run out and get a cheap interest rate...

Banks (those guys lending you money for your home) spend a lot of time predicting what is going to happen to interest rates (the OCR movement is part of this) they don’t wait to see what happens at 9am on Monetary Policy Statement and Official Cash Rate review dates (which are usually Thursdays every 6 – 7 weeks apart ) when the governor of the Reserve Bank of NZ (RBNZ), currently found here, makes an announce that the OCR is either going up, going down, or staying the same.

Banks are usually well ahead of the game and have adjusted their fixed term mortgage interest rates well before any OCR announcement – especially those rates for fixed terms of one year and above. Usually, the only interest rates that change immediately when the OCR changes are floating interest rates.

The OCR is not the only factor banks use in setting your home loan interest rate. This interest rate is affected by many things  - one is the ‘funding cost’ – this is the amount  charged by the guys who are lending your bank money (this is the bit where the OCR has some effect) and another is what ‘margin’ your bank decides to put on top – this margin is usually based on cost and risk analysis. Over the last few years, the risk associated with your bank lending you money has increased - amongst other things - house prices have fluctuated and people's ability to make mortgage repayments has been influenced by an economy in recession. This has meant that a larger 'margin' has been added by banks to cover risk.

So should you take any notice of the OCR? Yes! But you need to be paying attention long before the change actually happens - when the OCR goes up (or down), unless it is a big surprise, the change has usually long since been factored into rates available – you are better off focusing more on what the OCR is predicted to be doing over the coming months and using this information when you are deciding about what to do with your home loan.

On OCR announcement days it is actually the commentary that goes along with the OCR announcements that has a greater affect on home loan interest rates. What is said by Dr Alan Bollard can have a strong affect on interest rate forecasting, this is the info that banks are after and are using in their longer term interest rate adjustments. Here you can find what Dr Alan Bollard said on the 29 July 2010 OCR announcement.

Want the run down on monetary policy including about how the OCR affects bank lending rates? Head this way!

Want some expert advice on where mortgage interest rates are heading and help with sorting out lending – a mortgage broker is a good place to start. You can organise a free chat with a local mortgage broker here. Otherwise, check out our mortgages and money section for all you need to know about borrowing for a home.

And don't forget - we have some solid home buying advice in our house buying guide.

Should I Use a Mortgage Broker?

Mortgage brokers are everywhere and are becoming a common factor in the house buying and selling process. Should you use one? Firstly - you do not need to use a mortgage broker! The process of applying for and getting a home loan can be done by you and is a fairly straightforward process.

So what can a mortgage broker do for me? A good mortgage broker will use their experience to review your financial situation and get the best home loan deal for you. They will start by collecting details of your financial situation and copies of documents needed for applications.

Once they have all this information the mortgage broker will be able to determine who is likely to give you a home loan. They will usually narrow this down, performing a home loan comparison that takes into account all the information they know about you and then present you with a couple of good home loan options. You can then do your own home loan comparison using the mortgage brokers suggestions and make a decision.

The mortgage broker will also look at home loan interest rates. The current interest rates on offer at banks will be a big factor, but not the only factor, in the mortgage broker’s analysis of the best home loan offer for you. Often a mortgage broker can negotiate a better home loan interest rate then that advertised by a bank. The mortgage broker will work with you to determine a home loan structure i.e. how much to fix (at what home loan interest rate), and how much to float.

This is great! Especially if this is your first home loan or you are unfamiliar with borrowing, interest rates, mortgages or home loans. The process of getting a home loan can seem complicated, and a bit scary! And a good mortgage broker can definitely help you smooth out the bumps and explain the confusing bits.

A mortgage broker can potentially save you tens of thousands of dollars during the life of your loan by negotiating on home loan interest rates, structuring your loans, negotiating bank charges, and recommending products to best fit the way you manage your money.

Not every bank will necessarily say yes to your finance application, but it is the job of the mortgage broker to know which ones will and what information is required for the loan application. So if you are not a ‘perfect’ borrower, a mortgage broker will know who the best lenders are to approach to get the mortgage you are after.

Particularly if you are having trouble getting finance, if you are not feeling confident about negotiating with your bank, if you feel that you could do better but don’t know the right questions to ask, if this is your first home loan, or you just don’t have the time to shop around, a mortgage broker can be a good choice.

However, most mortgage brokers only get paid if you take out a mortgage through them, this makes them ‘invested’ in your house purchase. You need to remember this and be aware that you can only 100% trust the advice of people that have nothing to gain from your house purchase going through.

Recommendations of property valuers and building inspectors should not come from your mortgage broker. Also, make sure you are comfortable with the amount of lending on offer. Some mortgage brokers are almost too good at their jobs and can get you approvals for amounts of money that make your head spin!

Make sure you know your limits and stay in your finance comfort zone! You do not have to take up an offer of a home loan that your mortgage broker has arranged for you! If a finance offer is unacceptable, you can get your mortgage broker to try again.

Most importantly! If you are not comfortable with your mortgage broker do not hesitate in changing mortgage broker or working with the lending institutes directly.

Finally, not all banks will deal with mortgage brokers, so if you want a BNZ home loan or a Kiwibank home loan, for example, you will only be able to approach these banks directly.

This information is part of the Propertytoolbox mortgage broker guide - This guide contains heaps of good info about mortgage brokers. Read more here.

Should I Fix or Float My Home Loan? Some Tips…

With talk of interest rates going up soon, this is a hot topic. Here at Propertytoolbox we have some advice and tips on how to make this fix/float decision. If you are after info on just what fixing and floating is - check out our structuring your home loan advice.

The best places to go to be assured that you are taking the advice of people who have all the facts at hand, and all the best brains working on the fix/float question, is banks' websites and sites such as Economic reports and commentaries by banks' chief economists are a great source of information and will give you the information you need to be able to make a decision. Speaking to a mortgage broker can also be a great help - they have access to the most recent information,  and you can discuss your own situation with them to get the most relevant advice - usually for free! You can organise a chat with a mortgage broker here.

While all the major banks publish their own reports, a favourite of ours at Propertytoolbox is the BNZ Weekly Overview. This report comes out weekly and has a section tailored to residential borrowers called 'If I was a borrower what would I do'. The National Bank also has a good report tailored to the property market.

When deciding about structuring your home loan it is always best to gather information from a number of sources - then you can be assured that you are getting the full picture - or as close to it as you can given that nobody can predict the future.

Borrowing is a personal thing and you have to make a decision based on your own personal circumstances. If you are planning to sell your house, or are expecting a windfall then fixing may not be a good option as you may get charged large break fees when you pay off your loan. Also, if your circumstances mean that your finances cannot handle an increase in mortgage repayments then having large amounts floating or on very short term fixed may be too risky.

Here are some questions to ask yourself that may help you to decide:

  • Are you likely to have any extra money that can go into your mortgage - a large amount or small amount here and there?
  • Are you likely to move house - What are your plans for the next few years? Do you have plans to move on? Might you have to move for your job? Is your family growing? Might you go overseas?
  • How do you feel about risk? - Would you rather know exactly what you repayments are going to be or are you happy with some variability.
  • Current mortgage interest rates - Are interest rates on their way down or up?
  • What are the experts saying?

When it comes down to it, nobody really knows what is going to happen in the future with mortgage interest rates. There are a lot of factors involved and the New Zealand and global economy all have an influence.

If you feel that you need help with this decision, then talking to a lending specialist at your bank, or a mortgage broker is really your best option. Not sure about mortgage brokers? Find out just how mortgage brokers work here.