The Reserve Bank Governor emphasised an outlook for higher interest rates in his November Financial Stability Report which is not what we have been hearing from the economic commentators of late. The economic commentators are basing their interest rate outlooks on many factors although they all quote;
- Benign Inflation (Inflation rate @ 1.0% – Third Quarter 2014)
- Reduced Dairy Sector Payouts ($ 8-40 to $ 5-30)
Whilst the Official Cash Rate has an immediate effect Floating Mortgages, the Global Outlook determines Fixed Rate Mortgage Rates. The recent European Central Bank step to cut deposit rates deeper into negative territory to stimulate their economy combined with US Federal Reserve stating they are still some way off increasing their rates despite improving economic trends in the US, has seen NZ Fixed Rate Mortgage Rates reduce in the last month. These Home Loan Fixed Rates are providing real value to people compared to Floating Rates which depending on the term are up to 1% cheaper. Bank’s are also competing for new business and will discount rates further for new lending – Volume and Strength of proposition basis.
Your interest rate strategy should be assessing your risks and personal preference for certainty and flexibility. Short term Fixed Home Loan Rates are better than Longer Term Fixed Rates and Floating Rates, although there is risk when your rate expires. The best mortgage strategy is one that takes into account your own preferences, tolerance for uncertainty, cashflows and ability to deal with future mortgage payments as interest rates change. A true advisor will ask you these and tailor a loan which best suits your needs.
