Borrowing strategy should have been sorted last year
In this week's BNZ Weekly Overview, Alexander says that if, in spite of the deteriorating state of the NZ and global economies and against the BNZ's suggestion, borrowers fixed long-term last year, then they are likely to have constraints on monthly cash outflows that forced them to do so. Or they "panicked" about how high floating rates might go.
"If you did, then what you will do in two-three years time is again fix when fixed rates are near their peaks, because you will "save" money compared with floating," he says.
"Get ready for that behaviour by reducing your principal over the next couple of years," Alexander advises.
He himself prefers certainty and therefore fixed rates when looking at a three year time horizon, although he says most people do not. He advises these floating rate borrowers to budget for these rates to get towards 8.5% by the end of 2011 and perhaps higher over 2012.
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