Short, yes, but how short?
Short, yes, but how short? Mortgage advisers are recommending borrowers to put their borrowing on a short leash as interest rates slide but one-year rates are generally less expensive than six month terms and the floating rate is higher again.
Tuesday, November 18th 2008, 6:55PM
by Maria Scott
“In an environment where the Reserve Bank is likely to be cutting rates aggressively, it’s appealing to fix for as short as possible. However six-month rates tend to be high, at around 8.50%. If you fix for six months at 8.50%, you’ll need to fix at 7.30% or less in six months to be better off than fixing for one year. If interest rates fall quickly, that may be possible. However, that’s the point – the one year rate already has that expectation ‘built in’ to it.”
ANZ has a one-year 7.90% rates for borrowers who want to raise a sum that is less than 80% of the value of their property. Those who qualify will pay 1.55 basis points less than the variable rate of 9.45%.
To make the six-month rate of 8.50% cheaper in the long run, the market will need to see rapid falls in wholesale interest rates. “We think there is a good chance that wholesale rates will fall quickly, but there’s no guarantee they will.
“If certainty and a low rate is what you want, fix for one year. But if you don’t mind paying a little more now, and you want to participate in falling interest rates, then fix for six months and review the situation again then.”
ANZ expects the official cash rate to bottom out at 4%.
| « Breaking fixed rate contracts could save you money | OCR cut to 7.5% » |
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