Fix Your Home Loan Or Leave Floating

Typically most home-owners will be better off fixing their mortgage for the next one to two years rather than sitting on a floating rate despite anticipation of a cut to the official cash rate.

The Reserve Bank is due to announce its latest decision on the OCR on Thursday and economists are 50/50 as to whether there will be a cut so soon, but many expect it to drop this year.

Does A Reduction Of The Cash Rate Make A Difference?

When The Reserve Bank cuts the cash rate it typically results in banks making immediate changes to their floating interest rates on mortgages, but not necessarily the fixed rates.

According to the website interest.co.nz today the floating rates quoted on revolving credit accounts range from 5.45% with Co-Operative Bank to 6.70% with HSBC.

Mortgage broker Stuart Wills says the OCR would have to drop a lot to make it worthwhile waiting to fix because current floating rates are that much higher than the fixed rates. Bernard Hickey has his own opinion on whether to fix or float too.

Locking in a mortgage for a year or two could cost as little as 4.25% and maybe even a little lower than that. Fixed rates have been dropping at the banks over the last few months as the cost of wholesale borrowing (what it costs the banks to borrow) has fallen and while the banks are competing for business.

Fixed Repayments

Should You Fix Your Home Loan?

Will the rates continue down, remain about the same or increase?

That is a question that no person really knows the answer to.

As mortgage brokers this would be one of the most common questions that we get asked; however we only have an opinion the same as many pther people. The fact is that it is more prudent to consider the loan structure that you use rather than trying to chase the lowest home loan rates continuously.

A fixed rate home loan has the advantage of certainty in a similar way that a good insurance policy would.

The Perfect Loan Structure

Of course there is no such thing as the perfect loan structure; however most good mortgage brokers will structure a home loan with a mixture of fixed and floating mortgages. The fixed mortgages provide certainty and have offered lower mortgage interest rates than any floating rate mortgages, but the floating mortgages allow people to pay off more which is ideal for those people trying to pay off their mortgage faster.

A revolving credit facility can be very useful for part of your mortgages too, but you do need to manage your spending well.

Speak To A Mortgage Broker

Mortgage brokers are very experienced at helping you decide on a mortgage structure and they can also help you monitor the mortgage over the years ahead and negotiate better rates with the banks too. As most deal with a range of banks they will also will compare home loans for you to make sure you are getting the best options.