Interest Rates

[Wayne]

My experience is that you miss the boat.

What increase indicates it is the start of the long term rates going up? So if 5 year rates go from 5.3% to 5.4% tomorrow, do you suddenly break your short term rates and fix for 5 years. Or do you wait a few months to see what happens?

Unless you are really watching, I think you miss. And even if you are watching hard, it is very hard to pick the bottom of any trend and you would be torn between the low current rates and possibly higher long term rates.

Ross

Still say fix for 6 months (cheaper than floating).
Split the loans into many, all at 6 months (1 house would be 2 loans - $3mil = 10 @ $300k each say)
When the rates really start to rise jump in longer term with the next loan up for refix.
If you are wrong you continue to fix 6 months on the rest as they come up.
Worst case you are 6 months late getting the best rates.
I don't think they will structurally move up fast - may be blips up fast but long term they will move up slowly.

You don't have to pick the bottom of the trend - just near bottom.

Yes rates are historically low - make the most of them rather than say they were 6 so 5 is good when you could be paying 4% for a while.
Just saying.

[Orpheus1]

I just got this offer in this morning, what do you think?

6 months 4.49%pa12 months 4.35%pa24 months 4.49%pa36 months 4.59%pa48 months 4.89%pa60 months 4.99%pa

My broker thinks we can push a little harder on the rates also.

They also are offering 10k in cash contributions to help with break fee's from my current lender.

[Maccachic]

The Co-operative Bank has cut its four and five year fixed rates to 4.99%. It is now close to being the first lender to have all its fixed rates under the five percent market. The only fixed rate it has which is still above 5% is the six-month rate which is 5.19% - from Goodreturns in my inbox this morning

[PTILoveYou]

I just got this offer in this morning, what do you think?

6 months 4.49%pa12 months 4.35%pa24 months 4.49%pa36 months 4.59%pa48 months 4.89%pa60 months 4.99%pa

My broker thinks we can push a little harder on the rates also.

They also are offering 10k in cash contributions to help with break fee's from my current lender.

You need to push A LOT HARDER on those rates!!!

[Judge]

My experience is that you miss the boat.

What increase indicates it is the start of the long term rates going up? So if 5 year rates go from 5.3% to 5.4% tomorrow, do you suddenly break your short term rates and fix for 5 years. Or do you wait a few months to see what happens?

Unless you are really watching, I think you miss. And even if you are watching hard, it is very hard to pick the bottom of any trend and you would be torn between the low current rates and possibly higher long term rates.

Ross

Ross,

The banks increase or reduce their rates in response to macro economic influences. These influences are widely discussed and are not a secret, so i would only act if i see that Banks are increasing their rates as a result of a larger influence. If inflation starts going through the roof for example, and there is no end in sight. Or if the US increases its rates by 100 per quarter and indicates that it will continue doing this for the foreseeable future. I am not saying i have a recipe to time the bottom, but the way the banks set their rates seems to be more driven by the environment around them rather than their own decisions, so if we observe this environment and can spot the trend, we may made an educated guess about the rates. Pre GFC economy around the world was going crazy with inflation around 3%, so the rates were going up. After GFC global gloom and fear of depression made the governments panic, so OCR went down. What is the next big "Catalyst"? I do not know, but i hope i will spot it.

[Judge]

Hi Judge,

Just wanted to comment on the floating part.

Say 1 year ago you had $1 million loan that you moved to floating and still floating.

On standard interest.co.nz floating rates, you would have been paying about 6.25% (yes you probably have a discount, but you can also get discounts of the other rates too)

If you had fixed 1 year ago for 6 months or 12 months, then interest rate probably would have been 5% or less.

So if you had floated a reasonable loan amount for a year, you could have paid $12,500 more than you needed to!

So if you really wanted to stay floating, I would look at 6 month terms instead as basically the same thing, but at a much lower interest rate.

Ross

Ross, i totally agree. I have been floating recently not just to keep flexibility bu also so i have most of my loans floating so i could negotiate with my bank a cash offer to stay (went to ANZ, got a good offer and gave it to BNZ which they effectively matched). Next move is to lock for 6 months after the OCR announcement on 29th. As someone mentioned here before, we can use rate lock agreements 3 months before rates come off fixed so if anything happens in the mean time will look to hedge my bets through that.

[Judge]

Still say fix for 6 months (cheaper than floating).
Split the loans into many, all at 6 months (1 house would be 2 loans - $3mil = 10 @ $300k each say)
When the rates really start to rise jump in longer term with the next loan up for refix.
If you are wrong you continue to fix 6 months on the rest as they come up.
Worst case you are 6 months late getting the best rates.
I don't think they will structurally move up fast - may be blips up fast but long term they will move up slowly.

You don't have to pick the bottom of the trend - just near bottom.

Yes rates are historically low - make the most of them rather than say they were 6 so 5 is good when you could be paying 4% for a while.
Just saying.

Wayne, let me virtually shake your virtual hand! We are certainly on the same page.

[ivanp]

The banks increase or reduce their rates in response to macro economic influences. These influences are widely discussed and are not a secret, so i would only act if i see that Banks are increasing their rates as a result of a larger influence.

The banks increase or reduce their long-term (3 and 5 year) rates mostly based on how cheap they can borrow money overseas. You probably can't see these wholesale interest rates and their movements unless you are employee of one of the banks, on position that has access to such information.

I suspect that by the time you hear in news that the Federal Reserve has increased their rate, the increase is already priced into the wholesale rates and therefore priced into long-term mortgage rates offered by NZ banks...

So I don't think it is easy to predict the bottom of interest rates.

[Judge]

The banks increase or reduce their long-term (3 and 5 year) rates mostly based on how cheap they can borrow money overseas. You probably can't see these wholesale interest rates and their movements unless you are employee of one of the banks, on position that has access to such information.

I suspect that by the time you hear in news that the Federal Reserve has increased their rate, the increase is already priced into the wholesale rates and therefore priced into long-term mortgage rates offered by NZ banks...

So I don't think it is easy to predict the bottom of interest rates.

Ivan, wholesale rates are publicly available and are constantly discussed on interest.co.nz Especially if there are any significant movements.

I never said it was easy to predict the bottom. in fact i can guarantee i will miss the bottom because i will only know where the bottom is once the rates start going up. As Wayne said, my goal is not to be too far from the bottom.


Another way i look at it is, 6 moths ago i was happy to lock at 5.99% for 5 years. At the moment i can do it for 4.99%. Say 4.99% is the bottom and the rates increase 50 points from now until i realise that the rates have bottomed and long term trend is up. I will lock at 5.49% for 5 years, which is still 50 point below where i would have been if i locked before. even if i completely miss the boat and lock at 5.99% i will still be better off having enjoyed really low rates for a year.

[ivanp]

Ivan, wholesale rates are publicly available and are constantly discussed on interest.co.nz Especially if there are any significant movements.

Where exactly? By wholesale rates I mean rates used when let's say ANZ borrows from US in order to lend retail here in NZ...

I do not disagree with the rest, trying to do the same with some of my loans.

Though at the moment I'm more concerned of potential new regulations such as higher capital requirements for investors's loans, and therefore higher interest rates for investors...

[Wayne]

So I don't think it is easy to predict the bottom of interest rates.

As I have suggested - you don't have to pick the bottom, just near it.
I think 0-6months lag will see you nearer the bottom than the top.

[Wayne]

You need to push A LOT HARDER on those rates!!!

Looking to fix $600k at 71% LVR for 6 months
What do you think would be a good rate and who seems to be offering the best at the moment.

[Hound]

Fixed 4.29% for one year, ANZ. More coming up next month.

[PTILoveYou]

try 4.35 ?

[BigDreamer]

What's the best 6 months rate at the moment?