Posts Tagged ‘OCR’

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 interest.co.nz 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!





House Buying Advice – My Propertytoolbox Top Five

The Propertytoolbox Blog has been full of great stuff this year. I have my own personal favourites and I thought I would share them with you. These articles were ones that I thought had some really helpful and useful information – giving you some key knowledge that could help you to make good house buying decisions! And that is, after all, what we are all about here at Propertytoolbox.

My Propertytoolbox Top Five

1. Scrim and Sarking.

This 4 part series of articles was packed full of information on Scrim and Sarking (a common wall lining in NZ houses). We started with explaining what Scrim and Sarking is and how to identify it. Then we went on to discuss why you need to think about replacing Scrim & Sarking wall linings. This article was followed by one on re-gibbing and what that involves and then finally on to the cost of replacing Scrim and Sarking wall linings. The series had some fantastic photos too, this was my favourite photo of the year.

Layers Of Wallpaper On Scrim


2. The OCR

The OCR (Official Cash Rate) is an important part of your life when you have a mortgage – and it really helps to understand what it is about when you are deciding about fixing or floating your home loan. Our article ‘The OCR and Your Home Loan Interest Rate’ talks all about it – so have a read and maybe the OCR will not longer be a mystery!

3. Viewing a House – 10 Quick Checks

The advice in this article could save you a lot of time and energy! In it we list 10 quick visual checks you can do when you go to view a house. These few checks can give you some insight into things that you may have missed otherwise and may only come to light at future viewing or even in a building inspection as part of an offer.

4. Costs of Home Ownership

Sometimes only the full impact of the financial commitment of home ownership becomes clear when it is too late. This explains all, and may highlight things/costs you haven’t even thought of. It always pays to make any house buying decision fully informed so this article ‘House Maintenance Budget? Costs of Home Ownership’ is a must read.

5. Property Valuation

So you want a property valuer? How about a website that profiles your local property valuers allowing you to compare, choose and contact them? Propertyvaluationnz.co.nz does all that! Propertyvaluationnz.co.nz was launched by Propertytoolbox this year and I think it provides an awesome service for home buyers in NZ – find out more about it in the Blog article ‘Property Valuation NZ – Helping You Find a Property Valuer’.

So there you have my top five. Over the next few weeks we will be going over more of our ‘Best Bits’ from the Propertytoolbox Blog for this year. Do you want more great house buying information right now? Head straight to our house buying guide.

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.