Advice to stay floating despite RBNZ signal

[muppet]

Oh well the Reserve bank left the OCR at 2.5%.
So for those who are floating or have loans due for renewal here is what one economist has been suggesting.

Advice to stay floating despite RBNZ signal

PALOMA MIGONE Last updated 11:30 09/06/2011



RATE ADVICE: Homeowners may want to hold off fixing mortgage rates despite a signal from the RBNZ that the OCR will rise.

Homeowners eager to get a fixed mortgage rate after the Reserve Bank signalled a start to interest rate rises should reconsider, a senior economist says.
The Reserve Bank left the OCR at 2.5 per cent today but said it would start to lift the official rate to follow the pace of the economic recovery.
Some economists are now picking a rate increase late this year, although others still expect the OCR to stay at 2.5 per cent until the end of the year and then gradually increase in 2012.
ANZ chief economist Cameron Bagrie said though the OCR was a big player in influencing borrowing rates, homeowners should stick to floating mortgages to pay less.
Two and three year rates are about 6.45 and 6.90 per cent respectively, while floating rates are 5.75 per cent.
"In order for you to win by taking a two to three year fixed mortgage rate over keeping things floating, you would have to see the floating interest rate move up a long way.

Read more at
http://www.stuff.co.nz/business/mone...te-RBNZ-signal

[Bob Kane]

I'm starting to think that the Reserve Bank might not lift the OCR for some time. They'd only do it to dampen down inflation and I don't see much inflation ahead of us. We might have another 12 months of the OCR <= 3%.

[Bluekiwi]

This has been on my mind of late with about 1m floating.
I think it depends on timing.
If you fixed now, then yes you would pay more.
But if you fix just before the rates go up, then you could likely win.

I am taking this strategy probably more like Bobs.
And that I am going to wait till at leat end of this year, and possibly into March next year.
And then fix for 3 years.

But then if I miss the boat and rates rise before I get a chance to fix, then I just fix for 2 years instead of 3 as a contingency plan and then at at least I did in fact get the previous 6 months at the low floating rate.

Mental Note: Probably didnt explain my plan very well.

But, my broker thinks, which is diff to what the bank cone heads are saying, that I should wait as he thinks the 3 year rate could dip to below 6.5%, and if that happens then I would definitely take that.

I have heard 2 brokers say that now, but I am not quite sure on there reasoning.

[Bluekiwi]

On my mind so much that I double posted.

But you need to match it to your plan and your situation.

For me its about buying as much property now and being safe for the next 3 years while house prices creep up.
So fixing for only 2 to 3 years works and keeps my costs down and fixed.

And then when I have to relook at rates in 3 years time, that are about 8% the same as my yield
I have 3 years capital growth to recycle as a line of credit in case I need funds to assist if I am in a negative cash flow situation.

[damage]

I'm starting to think that the Reserve Bank might not lift the OCR for some time. They'd only do it to dampen down inflation and I don't see much inflation ahead of us. We might have another 12 months of the OCR <= 3%.

Look at the Uk, Both CPI and & RPI is high, yet interest rates remain at record lows.
So I think you're probably right on them staying under 3% for some time

[jaxy]

I thought NZ long term rates were influenced by what interest rates the banks could borrow one year money in the US. We had the situation a while ago where call money was high & longer terms were relatively low. Brought about by lower interest rates in the US for longer terms.

Will wait & see what happens to NZ longer term rates if the call interest rates are lifted after the election. If long term rates lift in the US then that should force our long term rates up. However the US is printing so much money it must be hard to lend at a high interest rate.

[WGN ex-property manager]

I'm personally floating most of my borrowing, and keeping an eye on the 5 year rates. Hopefully can step off floating as it rises, but still get a reasonable 5 yr rate to ride out the big inflation hit we may be in for in the medium term

[Bob Kane]

I'm starting to think that the Reserve Bank might not lift the OCR for some time. They'd only do it to dampen down inflation and I don't see much inflation ahead of us. We might have another 12 months of the OCR <= 3%.

I'm still thinking the OCR rate might not get over 3% for the next 12 months.
The world is still a bit unsteady.
Floating is probably better than fixing.

[Bob Kane]

I'm starting to think that the Reserve Bank might not lift the OCR for some time. They'd only do it to dampen down inflation and I don't see much inflation ahead of us. We might have another 12 months of the OCR <= 3%.

When I wrote that back in June, I was really thinking we might have two years before the OCR was raised over 3% but mindful that we live in fast changing times I moderated it down to 12 months.
The ways things are unfolding, the OCR just might stay around 3% till mid-2013.
Wouldn't that be nice?
Who is rushing out to fix their mortgage rates?

[Viking]

Looking at the 10 yr rates and the 3 year swaps they might go down more yet.