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.
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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.
