There is a lot of head scratching going on over the future of home loan rates this week. As I said last week the Reserve Bank is saying its base official cash rate is likely to stay around the 2.5% mark until 2010 and home loan rates should stay down.
However, the market is disagreeing with the central bank, and saying that rate increases will start early in 2010. A wrap of what the economists are saying, now they have had some time to digest the RBNZ announcement and review the market reaction, is here.
This split in opinion is quite critical for borrowers. Most experts, whether they are economists or mortgage brokers, are saying the best strategy at the moment is short-term rates. Go for six-month or one-year terms and look to roll them at maturity.
However, many comments to the previous Blog suggested going long makes the most sense at the moment. A couple things to consider are that long-term rates, particularly five-year rates, are sitting at their historical average and are very close to where they were a year ago.
Short-term rates are some of the lowest on record, and as this graph shows, are significantly lower than a year ago. Indeed the six-month rate is more than 400 basis points lower than this time last year.
The other bit of information to consider is that a couple of years ago a piece of research was done which suggested the best interest rate strategy is to use the one-year rate and roll over on that.
What’s happened in the past week? During the week we have seen only one bank move its rates, that was Westpac, which increased its three and five-year rates 10 and 30 points respectively. The move keeps it in line with other banks, but still on the lower side.
The only lender to decrease rates was No 8 Mortgages. It looks good dropping its floating rate 100 basis points and some of its other shorter-term rates, while it raised long-term ones. However, readers should note No 8 is a specialist lender, so its rates aren’t directly comparable with the banks.
The only other lender to shift its floating rate was co-operative PSIS which increased its floating rate 20 points to 5.95% and keeps it as one of the best-priced in the market.
To check and compare rates go to www.mortgagerates.co.nz
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