Mortgage rates are looking festive as they continue to register scores of reductions by lenders.
Borrowers now need to consider how much lower home loan rates will go and whether it is time to lock into one of the new fixed rate deals.
Economists at Westpac believe they have the answer. In this week’s economic briefing they state: “Wholesale interest rates imply a very deep and front-loaded easing cycle by the RBNZ, and much of this has already been reflected in lower mortgage rates.
The advantage to floating or fixing for a short term is diminishing now, and borrowers should be looking for opportunities to extend the duration of their debt.”
The Reserve Bank is due to set the new official cash rate (OCR) next week (Thursday, December 4) and some economists believe that the reduction could be as much as 1.50 percentage points, bringing the OCR down to 5%.
As to whether economic conditions will justify further cuts in home loan rates in the New Year, if the events of the past few months have taught us anything it is that conditions can deteriorate beyond the expectations of even the most informed market commentators, and fast.
The latest round of cuts should certainly encourage borrowers to look at the rate they are currently paying and work out whether, if on a high fixed rate, they can save money by refinancing even after the costs are taken into account.
With floating rates now starting at Kiwibank’s market-leading 7.95%, floating does not seem a high risk option but every borrower’s circumstances are different and not everyone will want, much less be able, to switch to the lowest rates in the market.
Mortgage shoppers need to remember that the deal you are able to strike now will depend heavily on how much a lender wants your business; the less equity you have in your property the less attractive you will be.
For those who can shop around it may make sense to hedge bets by splitting debt between fixed and floating rates.