Post RSS Feed 
Podcast Feed
Brother in Law’s guide: Mortgage rates have bottomed, so fixers should fix soon (Updated June 11)
June 8th, 2009
By Bernard Hickey
Here’s the short version: Mortgage rates have bottomed out. The Reserve Bank of New Zealand (RBNZ) ended six months of record rate cutting on June 11 by leaving the Official Cash Rate on hold at 2.5%. It has called for banks to further reduce their short term mortgage rates, but this call is likely to be ignored, even though the RBNZ has reassured them that the OCR will be on hold until late next year.
Banks are increasing their longer term mortgage rates (3, 4 and 5 years), but are generally holding their floating, 6 month, one year and two year rates. Those wanting the certainty of a longer term mortgage to lock down their costs should fix now because the waves of government borrowing hitting our market and credit markets globally will push up longer term interest rates for years to come.
Those wanting the absolute lowest rate for the immediate future can probably afford to stay fixed at 6 months to 12 months for another 6-12 months because the economy will probably stay in recession until late this year or early next year and the Reserve Bank has ‘promised’ to keep the OCR at or below 2.5% until late 2010.
But the risk is that longer fixed rates will have risen sharply by the time a borrower tries to lock in a longer term rate. If my brother in law was asking, I’d say lock in for a couple of years now because rates are rising. It’s not urgent, but anyone borrowing should know that the long term average mortgage rate in New Zealand is around 8% and rates will revert there at some point from around 6% for 1 to 2 year rates now.
If my brother in law was still sceptical, I would say have it both ways by floating half and fixing half.
Here’s the longer version:
The Reserve Bank held the OCR at 2.5% on June 11 as most expected. It decided there were enough ‘green shoots’ emerging in the local and global economies to hold fire for now, but warned the recovery would be slow and fragile and it could cut the OCR again. It reassured again that it would keep the OCR at or below 2.5% until late next year.
Governor Alan Bollard called on the local banks to cut their short term mortgage rates further, saying he had given plenty of assurances for now and they had a role to help boost the economy. But the banks ignored his calls after the April 30 rate cut and are focused on fighting for term deposits with higher interest rates. I’d be very surprised if they cut after this latest piece of jawboning.
The end result of all this is that actual retail interest rates are either flat for short terms or rising for longer terms.
So what does all this mean for my brother in law?
It’s worth looking at whether mortgage borrowers who are rolling over in the next couple of months should float or fix, and if they fix, for what period.
This question of whether to fix or float and how long to fix is actually quite a complex question. It requires a view on where the OCR is heading, what is happening to wholesale interest rates and what profit margins the banks may choose to impose on top of these wholesale rates. Essentially, it requires a view on the likely state of the global and New Zealand economies, along with an idea of the stability and profitability of the banking system.
Individuals will also have their own situations to consider. If a lump sum is expected in the near future such as a bonus, redundancy payment or inheritance, it can make sense to go variable rather than fixed, even if the rate is higher because debt can be paid down early to save money.
Or it may make sense to fix even though the cost is higher because a borrower wants certainty about their outgoings. Everyone’s situation is different. This analysis is aimed at a ‘typical’ mortgage borrower who wants to find the lowest mortgage servicing costs for the foreseeable future. I fit into that category, having a sizeable mortgage over the house I live in, so this counts as an analysis aimed at myself and for my proverbial ‘brothers-in-law.’ So I’ll call it the brother-in-law’s guide.
Now the caveats are out of the way, let’s start.
OCR may trough at 2%, but it won’t be passed on
The OCR may be cut to as low as 2% by the September 10 MPS and OCR announcement. The Reserve Bank has indicated it is likely to hold the OCR at 2.5% or lower until late 2010 and I think it will stick to that because we are in a recession that could last until early 2010 and any recovery will be tentative and slow.
But banks are unable and unwilling to pass on the extra 50 bps of rate cuts because their international funding costs are high and they are having to compete hard for local deposits. Six month term deposit rates have actually risen around 50 basis points so far this year.
That means variable mortgage rates are unlikely to drop much below 6% and six month and 1 year rates are likely to be stable around 5.5% until late 2009 and possibly into early 2010. But 3, 4 and 5 year mortgage rates have already risen 100-200 basis points since February and could easily rise by the same amount again by the middle of next year. Two year mortgage rates have also risen, but only slightly. They could hold for another six months, but that becomes less likely as we get closer to the end of the year.
If my brother in law wanted the certainty of a longer term mortgage to lock down his costs, he should fix now because the waves of government borrowing hitting our market and credit markets globally will push up longer term interest rates for years to come.
Having it both ways
Anyone who values the certainty of a longer term fixed rate is probably safe to fix now, comfortable in the knowledge that these rates have fallen about as far as they can.
Variable mortgage rates (see all the rates here) have probably fallen as far as they are going to drop, but it is possible they could nudge a tad lower. Those believing rates could fall further could benefit from some of this by fixing half their mortgage and floating the other half.
My gut feel is that the global economy is in for a deep recession through 2009 that could easily extend into 2010 in a milder form. New Zealand’s recession could easily extend through until early 2010, with the earliest signs of a recovery being accompanied in late 2010 by an increase in the OCR.
Having half in 18 month to 2 year fixed allows some flexibility about when to fixer longer term in anticipation of higher long term rates.
My gut feel is, however, that actual rates have stopped falling so there is no loss in fixing longer term. It may already be too late to fix very long term because 5 year mortgage rates have already risen over 8% in recent days from as low as 6% in late January.
Tags: Alan Bollard, Brother in Law's guide, Mortgage rates, MPS, OCR, RBNZ, Reserve Bank
You may also like to read:
Loading ...
June 8th, 2009 at 2:01 pm
Those wanting to fix for five years have already missed the boat. When some people rushed to fix their mortgages at 5 yr rates about three months ago they were criticised by some on the basis rates would further decline. sadly rates for 5 yr motrtgages have simply tracked up. As mentioned rates are only going to increase but this must be frustrating for people who could have fixed at 6% three months ago and now are looking at 8%.
June 8th, 2009 at 3:48 pm
I have the answer. Bollard can borrow 65 billion from Ben and use it to buy the Treasury bonds on auction this month. Then using the bonds the RBNZ can cut them into little pieces and flog them off like tickets in a raffle(a billion per ticket+ 10%). You pays your bond price plus 10% but stand to win 1% of the total pot and keep what you bought if you don’t win!, The prize is $650ooooooUS. The RBNZ must pay back ben with the 64350oooooo plus the 10% extra they stole, 6435oooooo which makes 70785oooooo. A clear profit of $5785oooooo. Less my fee, just 1%, $57850ooo.oo
Jeez this financial crap is easy. I spose Bill will want to tax my 1%.
June 8th, 2009 at 4:34 pm
When all is said and done, there is more said than done.
June 8th, 2009 at 5:03 pm
A classic case of don’t listen to the “experts.” Well done to all those who fixed long at now what appear to be very cheap rates. And everyone including the banks were saying, hey relax there is no need to rush to fixed rates at the time….. Now they ramp the rates up.
RBNZ should be axed as we now know they are ineffective at controlling inflation, at controlling interest rates and they do a poor job of stimulating growth in this country. If NZ is going to be subject to the kinds of volatility the currency has had in recent times, why not leave the setting of interest rates to the free markets to decide?
June 8th, 2009 at 5:08 pm
They seem to be doing that anyway….
June 8th, 2009 at 5:22 pm
why not leave the setting of interest rates to the free markets to decide?
Yes. And if the West had done that, along with running true laissez-faire economies, we wouldn’t have been in this mess either.
Separate the State and the Economy.
June 8th, 2009 at 6:01 pm
I want my 1%.
June 8th, 2009 at 7:38 pm
come on mark hubbard, let the market sort it out has been proven to be a complete disaster. laissez-faire economies are a complete fallacy because humans screw other humans as a natural part of life – we can’t help ourselves. laissez-faire economies for the human condition mean an elite few get rich off the backs of the majority – very similar to what we have now
June 8th, 2009 at 9:42 pm
The deluded CNS68, two quotes from a speech by Ronald Reagan, 1964:
““You and I are told we must choose between a left or right. I’d like to suggest there is no such thing as a left or right. There is only an up or down. Up to man’s age-old dream — the ultimate in individual freedom consistent with law and order – or down to the ant heap of totalitarianism. . . ”
and:
“”[the Founding Fathers] knew that governments don’t control things. A government can’t control the economy without controlling people. And they know when a government sets out to do that, it must use force and coercion to achieve its purpose. They also knew, those Founding Fathers, that outside of its legitimate functions, government does nothing as well or as economically as the private sector of the economy.”
June 8th, 2009 at 10:21 pm
But what about Wally’s 1%? I might chase it up for a small fee for you Wally.
June 8th, 2009 at 11:12 pm
Bernard
It maybe worthwhile waiting for the passing of quadruple witching hour on June 19th before making any firm decisions.
Previous trends have a habit of unwinding in a violent manner in the lead up to these expirations.
June 9th, 2009 at 12:31 am
Mark Hubbard says:
“why not leave the setting of interest rates to the free markets to decide? Yes. And if the West had done that, along with running true laissez-faire economies, we wouldn’t have been in this mess either. Separate the State and the Economy.”
It was the free (unregulated) market of mortgage origination in the US that drove the 2000 to 2007 boom, and the credit crunch, through volume sub-prime lending. The free market rating agencies (effectively self-regulated) did their bit by allowing all these dud mortgages to be packaged up as investment grade CDOs (and other instruments) and sold to unsuspecting institutional investors all over the world who were screwed when the mortgages defaulted.
Certain hedge funds acting on a quasi free market basis (unregulated through ineptitude) got involved in the global asset froth and also screwed their investors (think Madoff).
The Icelandic banks which operated in a free-market environment as to leverage, messed up their financial models and broke the Icelandic economy.
Etc, etc.
Investor confidence got spooked and world markets crashed. Credit is scarce as the global banking system, and borrowers, are over-leveraged. Asset prices continue to fall. People continue to lose their jobs. Global growth is in reverse. Way to go free market.
While I agree that freeing certain markets from govt interferance can be of real benefit (e.g. removing trade and production subsidies to improve efficiency of resource allocation) it is necessary for the government to regulate financial markets to give investors the confidence to invest. This investment gives business access to capital and drives growth. Deregulation, which is often predicated on the fallacy of the availability of perfect information, can have the opposite effect.
Your belief that a separation of the economy from the State would have avoided the current crisis is founded on evidence that points to the exact opposite conclusion.
Your proposal to remove the Reserve Bank’s influence on rate setting would result in this key financial mechanism, of crucial importance to the national economy, being controlled by Australian owned retail banks. I can’t see how this could be a good idea.
It was a lack of regulation, greed and ignorance that caused this crisis.
June 9th, 2009 at 5:08 am
Mark Hubbard,
You cant have a fiat currency without a central bank!
And if you think gold is the answer – read the history of the great depression
June 9th, 2009 at 7:24 am
Kiwi expat in London
Great Post.
June 9th, 2009 at 8:37 am
What happens on June 19th ?
June 9th, 2009 at 8:52 am
The day on which contracts for stock index futures, stock index options, stock options and single stock futures all expire.
June 9th, 2009 at 8:53 am
It was the free (unregulated) market of mortgage origination in the US that drove the 2000 to 2007 boom, and the credit crunch, through volume sub-prime lending.
I’ve done this over and over and I’m not doing it again. Do a search for my posts. Western economies were not unregulated laissez faire markets, anything but: they were Keynesian nightmares, and that is what caused this.
The two biggest welfare agencies in the US leading to the credit crunch, having arisen as so out of the New Deal, and their function fired up by Clinton, were Fanny Mae and Freddie Mac – perhaps that should give you pause for thought?
Further clue: if there is a central bank, then there is no laissez faire market.
Question: if this was caused by lack of regulation, as opposed to cheap credit expansion and the printing of money, then why have the much more heavily regulated banking sectors of the UK and Europe fared worse than in the US?
And if you think gold is the answer – read the history of the great depression
I have, that’s why I know Keynesian government deficit spending is going to extend this pain, not fix it, just like the New Deal did, and Roosevelt. And before you bring up Hoover, he was the first great government interventionist in the market.
But again, I’ve argued this, if you two want to be slaves of a state driving you down to serfdom, go ahead …
June 9th, 2009 at 9:13 am
I agree with the first post, richard robinson. I got rubbished when I said a window of opportunity had quietly slipped by at the start of the year, when you could fix 5 years at 5.95% and there were a lot of houses that had been on the market most of 2008 that were selling anywhere up to 30% off (40% on some mortgagee ones).
Well done to anyone who managed to buy in that window.
I managed to buy one, but thanks to ridiculously tight lending criteria couldn’t do any more. The banks, with their usual great wisdom, happily lent us $500k to buy a house to live in that provides no income, yet wouldn’t lend $500k to buy some investment properties at a mortgagee auction that sold for 11% return!
June 9th, 2009 at 9:32 am
The trouble with gold is it’s heavy, and those criminal politicians plan to steal it from citizens with a flick of the legal wrist and a few coppers. Talking of copper!! we are stuffed get my 1% for me and 33% of it’s yours.
June 9th, 2009 at 9:54 am
No!, Mark Hubbard what got us where we are today is the notion that any object of our attentioin “is worth what someone is prepared to pay for it”. The “Free” market is the perpetuator of the “Mantra” and so competition begats winners and losers, till the losers find out they can borrow to win, and the lenders in the long haul join the losers because they too believed in the “notion”. The “Free” market is, insatiable by definition( what is the first charter of corporate ?) In order for the global enonomy not to return to this situation too quickly( because it will) would require a catastrophe of biblical proportions to ,shall we say get the numbers down as logic would dictate.But thats not gonna happen any time soon either is it Mark?
June 9th, 2009 at 10:09 am
I do despair.
Chris, read the Mises Bailout Reader, for a start, then we’ll discuss this. And again, I’ve done all this, if you want to promote the Big State path to the Gulags again, in spite of the facts, and governed only by blinkers, then go ahead. I just wish I could jump off the damned insane bus you and expat and Matthew seem so tragically to want to drive me to my – and your own – little grey cells in.
Bailout Reader: http://mises.org/story/3128
And read every article in there before I’m even interested in repeating arguments I’ve already waged in here. That is, refute the premises given in those articles, and I’ll argue those, not the nonsense bromides you just posted.
Finally, unrelated to that, a quote, from Vernon L. Smith, “Microeconomic Systems as an Experimental Science,” American Economic Review, Dec. 1982:
“At the heart of economics is a scientific mystery: How is it that the pricing system accomplishes the world’s work without anyone being in charge? Like language, on one invented it. None of us could have invented it, and its operation depends in no way on anyone’s comprehension or understanding of it. Somehow, it is a product of culture; yet in important ways, the pricing system is what makes culture possible. Smash it in the command economy and it rises as a Phoenix with a thousand heads, as the command system becomes shot through with bribery, favors, barter and underground exchange. Indeed, these latter elements may prevent the command system from collapsing. No law and no police force can stop it, for the police may become as large a part of the problem as of the solution. The pricing system–How is order produced from freedom of choice?–is a scientific mystery as deep, fundamental, and inspiring as that of the expanding universe or the forces that bind matter. For to understand it is to understand something about how the human species got from hunting-gathering through the agricultural and industrial revolutions to a state of affluence that allows us to ask questions about the expanding universe, the weak and strong forces that bind particles and the nature of the pricing system, itself. “
June 9th, 2009 at 10:19 am
And oh, a pastiche of economic theory that is not attached to a coherent philosophy, especially one that promotes your and my freedom, can kill. Will kill. Or at best enslave, which is no better. Read the Reagan quotes I gave above. Time and again history has shown them to be correct.
http://www.interest.co.nz/ratesblog/index.php/2009/06/08/brother-in-laws-guide-mortgage-rates-have-bottomed-so-fixers-should-fix-soon/#comment-25462
June 9th, 2009 at 11:51 am
We Are Stuffed, if you outsource the recovery of Wally’s 1% to me, I’ll track it down and split your commission 50%. So that’s 50% of 33% of the 1%, right?
I’ve got a few boys that’ll do the actual dirty work for minimum wage and crate of Speights, so all should be sweet.
June 9th, 2009 at 4:00 pm
What about those of us who borrow on the 90 day bill rate+ a margin?I currently pay 4.80%.Do you think the banks will increase their margin?What do you think Bernard?
June 9th, 2009 at 8:48 pm
Fix longer term rates now? Even an amateur like me could see the upward trend in longterm mortgage rates long ago. Luckily I managed to lock in 5 years at 6.75% days ahead of a series of increases. (I’m annoyed at myself for buying into the hype and not fixing 5 years when the rate was around 6%, but not as annoyed as I would have been if I had waited any longer!) My observation was that while short term rates were low and the cry to float, float, float, the longterm rates were sneaking upwards. Just weeks later we have reached 8% and more for 5 years. That’s a whopping 1.25% increase in a matter of weeks.
Come on Bernard, your advice to fix is splashed firmly on the butt of the horse that just bolted through the gate.
June 9th, 2009 at 9:23 pm
How about just staying on a floating rate then – like most Australians do? What is driving our long-term rates up must also be related to the fact that so many people want to fix for a longer term.
Janet and Stephen Hulme – could you explain a bit more about the significance of June 19th – “the day contracts for stock index futures, stock index options, stock options and single stock futures all expire”
June 10th, 2009 at 2:25 am
Mark Hubbard, you asked the following question: “If [the current crisis] was caused by lack of regulation, as opposed to cheap credit expansion and the printing of money, then why have the much more heavily regulated banking sectors of the UK and Europe fared worse than in the US?”
(1) The credit expansion was a key lubricant of the bubble, but was not the cause of its popping. The bubble grew and then popped because of what people did with this credit motivated by greed, ignorance and a lack of regulatory safeguards.
Mums and Dads became property speculators and used equity withdrawal as cash machines, businesses leveraged up on the basis of this retail spend and paid higher and higher EBITDA multiples for expansionary acquisitions. Mortgage originators and loan officers provided all the cash these people/businesses wanted, then sold the risk to insitutional investors who didn’t understand what they were buying. The underlying loans went bad because the borrowers made bad investments or couldn’t afford to service them.
If people had used the available credit for productive, prudent investment (a cornerstone of capitalism) rather than speculation, then less would have been lent/borrowed and we wouldn’t have had the bubble or the crash.
(2) The printing of money started well after the bubble popped, not before. In the present circumstances it is being used as the ‘cure’ in an attempt to prevent a collapse of the global financial system and ward off deflation.
(3) The UK and European banks are not worse off than the US Banks which have suffered multiple collapses (Lehman, WaMu, Merrill, etc). The US banks are simply further along the deleveraging cycle due to an accelerated rate of write-offs.
(4) To say that the European banks are more heavily regulated than the US banks demonstrates a fundamental misunderstanding of the various regulatory frameworks and approaches (e.g. Basel II, Sarbanes-Oxley, FSA, etc).
I took a look at the website you suggested and saw an article about your mate Ronald Regan. It reads:
“If President Reagan has a devotion to free trade, it must be blind because he has been way off the mark. In fact, he has been the most protectionist president since Herbert Hoover.”
http://mises.org/freemarket_detail.aspx?control=489
June 10th, 2009 at 10:50 am
The Financial Services Act, 1999 was America’s response to what was happening in London, where Glass Steagal didn’t exist in the first place. The UK can’t be blamed for trying to recapture the financial predominance Fleet Street enjoyed during the time of Queen Victoria, but it has to be acknowledged that the derivatives market was an invention of the Poms.
The lack of transparency in European accounting requirements allowed banks there to adjust their books to offset and postpone losses in a way US banks could not (until last April’s G20 Conference anyway). However, these losses will have to present themselves eventually. Timing is everything. It may well be a footnote in history that America survived by pouring enough cash into the financial bubble to wait out a more devastating European crash that followed.
June 10th, 2009 at 11:08 am
The credit expansion was a key lubricant of the bubble, but was not the cause of its popping. The bubble grew and then popped because of what people did with this credit motivated by greed, ignorance and a lack of regulatory safeguards.
How did the bubble grow? You’ve answered it! Via the credit expansion, and artificially held down interest rates through Greenspan, plus deliberate welfare from Fanny Mae and Freddy Mac. With the credit expansion, and the underpricing of the cost of same, these two actions completely distorted the market and ‘mums and dads’ investment decisions.
Understand the cause of the bubble. And quantitative easing is already laying the seeds of future bubbles.
The printing of money started well after the bubble popped, not before. In the present circumstances it is being used as the ‘cure’ in an attempt to prevent a collapse of the global financial system and ward off deflation.
What?
The credit expansion was an increase in the money supply (ie, is the printing of money). In other words, this is where the monetary inflation originated; in government/central bank actions.
And why ‘ward off deflation’? Deflation is simply the market’s answer to inflation. It increases the value of that most important resource in an economy: money. By deflation, the money in your bank increases it’s purchasing power, as does the value of your savings.
The reason why our Keynesian governments cannot actually afford to allow deflation, and must actively now try to promote inflation (insanity!), is because our democracies have become suffocated with minimum wage laws; that is, the one cost that can’t deflate is wages, which doesn’t mean that those on lower incomes can buy more, it simply means they lose these jobs, and unemployment is unpalatable to politicians. If wages were allowed to reduce, then the market could correct properly, and perhaps so many jobs wouldn’t be lost. However, this distortion in the market means the only political solution is to create the next asset bubble to destroy the savings of the next generation.
Re Reagan yes, partly agreed, but that doesn’t diminish the wisdom in the quotations I gave (just a pity he did not live up to them).
Regarding the regulation issue, further questions for you:
If deregulation is to blame for the recession that began in December 2007, presumably it should also get some of the credit for the intervening growth, and, why did the greater financial regulation of the 1970s in the US fail to prevent it from suffering not only double-digit inflation in that decade but also a recession (between 1973 and 1975) as severe and protracted as the one we’re in now.
And regarding regulation, just what exactly are you proposing to stop this happening again? How much law making and then give me an honest assessment of what that will do to entrepreneurship?
June 10th, 2009 at 11:12 am
@ Marie: 19/6 is just one of many dates that derivative product options and futures expire (on the US financial exchanges) throuout the year ( ie: the day that ‘bets’ on assets are settled). They often expire separately, but occassionally one or more expire on the same day. Hence the terms’ triple or quadruple witching’ days. Markets can become unruly, as both sides to the contacts scramble to cover their positions eg: the massive move in oil futures on settlement day a few months ago.
June 10th, 2009 at 8:17 pm
All those who listened to RBNZ Governor Alan Bollard foolish comments – “interest rates will stay low for a long term”… probably want to shoot him on site. Windows to purchase property @ low rates are long gone. Any further rate cuts are a waste of time.. OCR could be Zero – banks will not drop one point due to no been able obtain deposits lower than five %.( global shortage of funds). We are in for high interest rates for the long term. US printing money could well result in massive inflation – high rates – affecting on our markets also– any one up for 22% like in the dark days
BEACUSE New Zealand has no superannuation sector – we have limited capital to invest in income producing assets and bank deposits. We are stuffed
Could Alan Bollard be sued for damages for providing misleading and incorrect financial advice, without a prospectus or qualifications
Could the govt be held responsible to stopping compulsory superannuation scheme in my parent’s days – The one key act of stupidly, which destroyed this countries ability to grow?
- Availability of Money is going to get tighter
June 11th, 2009 at 11:19 am
does this mean if we fix interest only for eons followed by payment of the monkey in million dollar bills… 6.69% 5yr
June 11th, 2009 at 4:47 pm
Why doesn’t anyone seem to be discussing the protection of rate locks? These are fab. I’m a Landlord of 20+ yrs, a bit of a Olly really. I jumped off loans at 7.49% last December on way down & now have all loans on 4.99% 6 mths. rate locked 60 day options at 6.75% 3 years, which gives you 60 days from the date you rate lock to either take up option or walk away & take cheaper rate on markets at the time. The rate lock costs rose recently to $500 per 500K. This is cheap protection with alll the flexibilty. Nobody seems to be ‘truly advising Kiwis the smartest ways’. I have term deposits on 7% earning income. I beat the banks, I use my intuition a lot in the nick of time. I did hear all the hype on interest that predicted it all wrong so at March got caught out with not picking the bottom of rates. However over the past 7 years my average rate has averaged out at 6.99% over many loans for 2 yr 3 yr 5 yr rates. I’m solely a Landlord/ Mentor is just like playing MONOPOLY in real life – I tickle the board everyday for myself & for others. It’s so fun. Locked never means locked in if you know the way it works. I am a fulltime Landlord & Mentor others to a safe secure smart path of riches too. I’ve seen all the big boys & flashy boys such as Bluechips park their carks in my blocks I invested in too. I on the other hand, am a slowly slowly catch the monkey. I see them all go bankrupt as I take the safe stable road upward & beyond. It doesn’t take that long to make a lot in property. One my best talents & jobs is to save the money going out & hence I learn all the rules I can on where the best pearls are. New Zealander’s need to do the same in general – it is one of their biggest out going costs. Anyone needing a personal question answered on your delicate finances/loan or investment properties, happy to help people save & do it the best way that suits them. I passed the 5 yr tax aduit, jumped all the hoops, survived losing any money on a leaker. I learnt my expensive lessons in my 20’s now loving those lessons as they protect & reward me well now-a-days. (Some people, I am very happy to help for free who are really struggling to get their retirement nest egg sorted-it’s called ‘paying it back’ in life. What goes around comes around). 5 yr fixed gets tricky a bit too long if you dispose of a property for a genuine reason. you can break & refix along the course of 5 years easily enough, even without break fees or loan doc fees at times too. (-: Goodluck & remember you are never going to be able to always pick the bottom nor the top of any market, so when it turns protect your position. Had I locked in too early I might have cost the difference of 6% verses a potential 4.5% 5 year rate. Who knows, hence I don’t mind paying a bit more out on a higher rate once it is apparent its not dipping a whole lot more. Look at it that way … positively! Some economists in banks, need to almost zip up in this unstable, unknown market, leave people to tune in to the 6am business news & tune into their own senses & gut level.
June 11th, 2009 at 5:06 pm
By the way I love interest.co.nz & Bernie is cool !
June 11th, 2009 at 5:12 pm
And I love paragraph breaks
leave people to tune in to the 6am business news & tune into their own senses & gut level.
Their own gut level! I reckon that’s partly where it has been going wrong. I’m as guilty at bagging the economists as anyone in here – mainly on philosophic grounds – but the more information there is, then the more informed decisions that can be made. And if nothing else, a forecast/opinion you don’t agree with forces you to look at the rationale of your own forecasts or opinions.
‘Gut level’ sounds like flipping a coin to me.
June 12th, 2009 at 6:19 am
“Question: if this was caused by lack of regulation, as opposed to cheap credit expansion and the printing of money, then why have the much more heavily regulated banking sectors of the UK and Europe fared worse than in the US?”
Because they are not….effectively…..
Try looking at India’s banking system, or our own….still pretty healthy because they have effective regulation…..try looking at Iceland to see what less effective regulation achieves….let alone the rest.
regards
June 12th, 2009 at 6:49 am
Richard: I think there is an earlier piece suggesting that many (a huge majority) have fixed and the rush surprised the banks….and I think 5 years at 6ish% was/is a decent gamble…. very few (such as me) are left floating…..
Yvonne: As always make your own mind up its your money….just about the only ppl I trust with forecasting right now are the ones that say its very hard to forecast…its way to volitile….IMHO all you can look at is the long term fundimentals make your bets and sit tight…At the time Bernard’s comments were based on what was out there, once the Fed et al made a decision to move to serious QE that all changed…its un-precidented intervention plus the scale of Obama’s spending, plus China deciding to buy and stockpile commodities and not US treasuries all this is new and drastic. What we dont know is where the OCR is going to be over the next 5 years…if we get serious inflation then us floaters (I assume) loose out as the OCR is raised to combat it….if on the other hand we have a flat / depressed 5 years the ocr could stay very low….and a floater will win. My gamble is on 5 years+ of low interest rates….aka Japan style……a lost decade….
Bernard: Another option? Fixing now depends on where the average floating rate is going to be for 5 years v 8% fixed….it comes down to how much interest you pay in dollar terms….must be able to graph that….also with a floating there is an option to overpay at that 8% rate, that chips away at the original sum leaving less to pay in interest terms later on….also it means you have set your finances in place to meet that 8% worse case scenario…this is what I am doing….in fact I am probably paying close to 12%…to clear that sum off fast as I can I am aiming to be clear in 10 years or less so will ramp up futher….must be able to graph that effect as well….wish my maths were up to that…. :/ I might have a go….
The final point is in a volitile market I think its important to be flexible….A person could lose their job and have to work elsewhere….breaking a 5 year fixed would hurt financially….or if in neg equity, may not be possible. I think its important to look at the overall situation, possible scenarios and risks and not just fix on one aspect…
regards
June 12th, 2009 at 8:42 pm
How do you borrow on the 90 day bill rate??
June 12th, 2009 at 9:12 pm
Wow – thanks for the advice. Unfortunately we fixed for 5 years in February at 5.90%. Should have waited and fixed at 7.5%. Keep up the good work.
June 17th, 2009 at 12:57 pm
Thanks to you Bernard I fixed my mortgage in March for five years for 6.5%. I am very happy with the decision I made. Thanks for your advice (March 5th – brother in law guide “fixers should fix now). I know it is not easy task to predict these – well done.
June 17th, 2009 at 1:20 pm
Shean,”Availability of Money is going to get tighter” is not a sad face event, it’s cracker news for us savers.
June 17th, 2009 at 4:31 pm
Why are the Aussie banks stinging us with 8% interest but the same banks in Oz are offering a much lower rate? Aint they one company? seems a bit strange
June 21st, 2009 at 9:41 pm
I recently changed banks and went through a broker at the time a five year fixed rate was 5.9% I was convinced by the broker not to fix cos “its going to fall” and I’ll contact you if it looks like rising…..needless to say I never got that phone call but managed thanks to Bernard to get it fixed at 6.95%. Cheers Bernard if I hadn’t read your article I’d be looking at 8% now and yeah I am still waiting for my phone call from that Mortgage broker.
June 22nd, 2009 at 1:24 pm
Great to read everyones comments.
Keep it up Bernard, sounds like you are helping alot of people! I can’t wait to get a good enough deposit so I can get in the game too!
June 26th, 2009 at 1:02 pm
Who’s to say for sure that another wave of crises will not envelop the financial sector. This is the worst global recession in decades. Central banks may have engineered a bottom in equity prices and have people genuinely worried about inflation but there is no guanrantee THE bottom in interest rates is in. certainly in my opinion The bottom in housing is not in.
Brilliant website by the way.