The pleasant rates on offer from the banks currently are even better when you find out that discounts of up to .75% is not unusual for certain types of borrowers. How long can this continue for? Will we have ample warning of rising rates? or can they fall further? These questions circle around the minds of many borrowers and rightly so, as movements can affect how much cash we have every week.
There are a few camps of thought on what could happen but the majority of bank economists guess: at least an increase of 1.5% by 2014, in the OCR. The reserve bank however feel that the we will have growth in the economy but without too much inflation. As we know more inflation or increase in the cost of things, means higher short term rates as the reserve bank attempts to slows things down. Certain things on the horizon could be pointing to inflation in the coming years, such as; Christchurch rebuilding and investment flowing in from abroad.
Right now nobody is in a rush to fix their rate and possibly because of this low demand the rates have been discounted heavily. The same theory will work the other way as well. If and when rates start creeping up, a mad rush to fix could create a situation where banks increase fixed rates due to demand.
Is it time to fix your home loan? Well the short answer is, the feeling in the economist fraternity is turning from a wait and see approach to, it might be a good time to fix feeling. Often overlooked however is the number of variables which could affect the rates in the long run.
Currently our clients are leaning more and more towards the fixed rates, usually 2 years and over. Some requests are now coming through for the 3 to 5 year rates as well. If looking at fixing for the longer term, take advantage of the haggling opportunity which exists now and shoot for big discounts. You might be surprised at what is possible.
Paying of the principle faster is always a much more effective tool for cutting down the interest costs for your mortgage. Some people tend to get carried away when looking for rate discounts but it is interesting to note that .11% discount on $300,000 is $333 for the whole year, while additional payments of $31 per week can save almost $70,000 over the long run.
