Today as predicted The Reserve Bank drops the OCR (Official Cash Rate) and it may not be the last time this year either.
Statement by Reserve Bank Governor Graeme Wheeler said;
Monetary policy will continue to be accommodative. Our current projections and assumptions indicate that further policy easing will be required to ensure that future inflation settles near the middle of the target range. We will continue to watch closely the emerging economic data.
Will The Banks Lower Home Loans Rates?
Economists at ANZ signaled last week they expected that the banks would not pass on all of an expected cut in the OCR to home loan borrowers, arguing that international funding costs which have a greater influence were higher now.
Then on Monday the Prime Minister John Key has pre-empted any suggestion banks might not pass on all of an expected Official Cash Rate (OCR) cut to mortgage borrowers, saying he expected banks to be good corporate citizens and pass it all on if their borrowing costs were lower.
As mortgage brokers and keen observers of the financial markets in New Zealand we would expect that the banks will drop the home loan rates to keep both the Government and The Reserve Bank happy; however we expect they may then try to sneak up the rates quite soon after to compensate for the higher costs of international funding.
Will The OCR Go Even Lower?
The expectation is it will, but not by much.
Kiwibank and BNZ have already publicly said the OCR might go as low as 1.5% and they think it will happen before the end of this year. Then today in The Reserve Bank announcement there were clear signs that they would consider another drop this year.
But should people wait for the rates to go lower, or should they fix their rates now?
The Strategy Mortgage Advisers Suggest
Of course every situation will not be the same, but with a big difference between fixed rates and floating rates it makes sense to fix a big part of your debt and tack advantage of the lower home loan interest rates.
The general rules used is to leave an amount on floating in a revolving credit account which is just a bit over what you expect that you could repay in 1-year.
Then we suggest that you fix the rest of your mortgage, but split into two loans over a 1-year and 2-year fixed term which ensures that not all of your mortgage will come off fixed at any one time, but also this structure forces you to review your mortgage each year.
Finally we would suggest that you review your mortgage repayments now and at each review. If you increase your repayments even just a little bit you can shave years off your loan term and pay your mortgage off faster.
Take Advantage Of These Low Rates
We cannot predict the future so you need to take advantage of these new low interest rates now as they may not last. Sure, they could go down a little lower still but our advice will be to fix what you can now and make plans to pay your loans off faster.
It is also a great opportunity to consolidate any more expensive debt into your home loan rather than paying more to the finance companies and banks so they can announce big profits. Some credit cards, store cards and hire purchase agreements are ridiculously expensive and the interest rates have not come down for years even when the the cost of money has been so much lower.
Speak To A Mortgage Broker Now
When The Reserve Bank drops the OCR your team at The Mortgage Supply Company can help you work out the best options.
We will looks at your existing home loans and any other debts that you have and formulate a loan structure to suit you.
The banks have their standard advertised interest rates and even “special” home loan rates, but they will often reduce the rates even more when pushed by a mortgage broker.
Contact us today: 0800 100 939
