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Another big bank raises longer fixed home loan rates. It might be a good time to reassess the term of your fixed rate mortgage commitment - but the decisions are not easy

Another big bank raises longer fixed home loan rates. It might be a good time to reassess the term of your fixed rate mortgage commitment - but the decisions are not easy

Matching Kiwibank, Westpac has raised three longer term fixed rates.

But it didn't match Kiwibank's one year rate cut.

This move accelerates the steepening of the market home loan rate curve.

The other main banks are very likely to make the same move at the long end with their own rate hikes soon.

This steepening may not actually signal rate hikes at the short end. But they will come too.

So now is the time to think about locking in the longer rates before they disappear. That is especially true if you think the shorter one and two year fixed rates will rise at some point in the planable future.

There are a handful of banks still offering four and five year rates under 3%, and most others are in the 3%-to-4% range.

But what is the chance that one and two year rates will rise above that in the next year or so?

It certainly is a possibility. But there are questions about its likelihood. 

Easy money policies from the RBNZ are in place, and banks can draw on the Funding for Lending program at the OCR rate. There is no suggestion this offer is about to disappear and the three year commitment remains for this program.

Will the OCR rise? Possibly in the next year or so, and maybe by +1.0%. If and when that happens that will change the wholesale expectations and force up market rates. A lot will depend on how well the RBNZ signals that change. Surprises will cause them to rise faster than well signaled moves.

The key point to make is that no-one, not even the RBNZ policy makers, know what will happen over the next year or two. They make their decisions at the time, based on the facts before them.

Anyone who 'knows' now, is an unreliable source.

But that doesn't make it easier for you if you are contemplating a decision to fix long.

You need to make a choice and be comfortable with it. It is pointless looking back after the fact, and second guessing. Just ensure you can live with the decision you make from a payments and household budget perspective.

One useful way to make sense of these new changed home loan rates is to use our full-function mortgage calculators. (Term deposit rates can be assessed using this calculator).

And if you already have a fixed term mortgage that is not up for renewal at this time, our break fee calculator may help you assess your options.

Here is the updated snapshot of the lowest advertised fixed-term mortgage rates on offer from the key retail banks at the moment.

Fixed, below 80% LVR 6 mths   1 yr   18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
as at June 5, 2021 % % % % % % %
               
ANZ 3.39 2.25 2.45 2.59 2.89 3.90 3.99
ASB 2.99 2.25 2.49 2.59 2.89 3.19 3.39
3.39 2.25 2.49 2.55 2.79 3.09 3.39
Kiwibank 3.55 2.19   2.55 2.99 3.39 3.69
Westpac 2.99 2.25 2.45 2.59 2.99 3.39 3.69
               
Bank of China  3.45 2.15 2.15 2.55 2.75 3.05 3.35
China Construction Bank 4.70 2.65 2.65 2.65 2.80 2.89 2.99
Co-operative Bank (*FHB only) 2.25 2.09* 2.59 2.59 2.79 3.09 3.39
Heartland Bank   1.85   2.35 2.45    
HSBC 2.79 2.19 2.19 2.45 2.69 2.99 3.19
ICBC  2.89 2.25 2.35 2.35 2.65 2.89 2.99
 SBS Bank 3.39 2.19 2.39 2.49 2.79 3.09 3.39
 [incl Price Match Promise]  2.89 2.25 2.45 2.49 2.79 3.09 3.39

Fixed mortgage rates

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11 Comments

Westpac has raised three longer term fixed rates.

That's callous:

by Audaxes | 1st Jun 21, 5:00pm
Westpac has cut its bonus saver interest rate by -5 bps resulting in the best you can earn on this account being 0.15%.
A $6,666,666.667 bank deposit is required to save $10,000.00 annually at this rate of interest - a signature example of how to part the masses from the capacity to gather capital to meet expenses and save for assets.

True, and this does not even consider inflation. At the current inflation rate, this example would give a saver a significantly negative interest rate in real terms. Daylight robbery to sustain the housing Ponzi.

fortunr
So there are casualties other than FHB. :)
Yes, low interest rates have contributed significantly to house affordability issues for FHB.
But so too are low interest rates an issue for older people who were relying on the security of TD to meet living costs including aged care. For this group, alternative investment strategies are not the ideal given that they tend to involve higher risk and volatility and the longer term time frame to mitigate that is not an option.

The list of casualties extends to the corporate sector - a couple of examples;

by Audaxes | 12th May 21, 8:11pm
I cannot see a single reference to the rising present values of discounted cash flows associated with liabilities for insurance companies and individuals.
ACC announces $8.7 billion deficit for year as interest rates plummet

Falling interest rates
As was the case in 2018/19, interest rates continued to decline, influenced in part by COVID-19. Falling interest rates affect ACC in two keys areas: the valuation of the "outstanding claims liability" (OCL) and investment returns.

The OCL is our assessment of the net present value of how much ACC needs today to support already injured clients for as long as they require it. Falling interest rates result in a lower discount rate being applied to our OCL. In 2019/20 this contributed $7.3 billion to our deficit. The single-effective discount rate applied to our
OCL has an average duration of 20 years. This rate fell to 1.86% at 30 June 2020.

Investment returns for the year were 7.59% ($3.4 billion) after costs. Two-thirds of our investment portfolio is in fixed-interest products. This acts as a partial hedge to the interest rate exposure present in the OCL valuation.

In the past two financial years ACC has recorded $14.6 billion in deficits. These deficits have primarily been driven by economic factors outside ACC’s control.

These factors affected the valuation of ACC’s OCL by $16.4 billion.

Although these deficits are not cash losses, they do have impacts on the funding ratio of the levied and Non Earners’ accounts, which in turn affects levy and appropriation requirements. Link: https://www.acc.co.nz/about-us/corporate/

$6 billion cost blowout prompts major changes to the Government's transport plans; Upgrades to Mill Road, SH1 between Whangarei and Port Marsden, and the Takitimu North project affected
by Audaxes | 4th Jun 21, 11:42am
The RBNZ cut interest rates in half five times since July 2008. When interest rates are cut in half the present values of future cash flows are doubled for both assets and liabilities.

Wealth effect or wealth illusion?
When the Fed engineered its experiment to promote the wealth effect, the family with savings experienced an increase in the present value of their assets and also an increase in the present value of their liabilities. Because our financial assets are traded in markets and because we receive mutual fund and retirement account statements, we promptly saw the change in the value of our assets. We are much slower to appreciate the change in the present value of our liabilities, particularly the value of our future consumption expenditures. Link

I would be interested to see the effects on retirees propensity to consume. You can either look on a total return basis (ie draw down on your capital for expenses), invest more into riskier investments, or reduce your consumption.

Ironically retirees are much better off staying in cash/bonds, and using their capital as income, than entering into "lottery" investments that have a higher chance of bombing their capital base in one fell swoop.

It wouldn't be so bad in terms of preserving capital during these uncertain times, but the money isn't even government guaranteed. Then when they do eventually bring it in, it will just be 100k per bank. Inflation is instead eating away people savings buying power. No wonder people are buying up houses.

They haven't even lifted the term deposit rates on longer terms either.

It wouldn't be so bad in terms of preserving capital during these uncertain times, but the money isn't even government guaranteed. Then when they do eventually bring it in, it will just be 100k per bank. Inflation is instead eating away people savings buying power. No wonder people are buying up houses.

They haven't even lifted the term deposit rates on longer terms either.

dead right,nobody knows what will happen in the next year or two ,but as always if the climate changes there will still be plenty surprised to see their paper profits scattered to the four winds.

A great, well balanced article with the best advice available:
- "Anyone who 'knows' now, is an unreliable source."
- "You need to make a choice and be comfortable with it. Just ensure you can live with the decision you make from a payments and household budget perspective.

I was about to say the exact same thing with reference to the two quotes you've made!

I think its an no arithmetic mental evaluation of the chances of further rate cuts vs increasing rates. That appears to be a pretty obvious answer to me. The fly in the ointment is how soon does your current fixed term roll over ? If its not coming up within the next few months your options could change significantly and my pick is not for the better.