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The one-year rates advertised by big banks like ANZ have dropped again and are sitting on 4.15% as I write this article and drink my coffee. Being in the market for a re-finance of my own mortgage, I wonder if 3.99% (or even less) is achievable once again, and I think it is. For one thing, third party advisors like the ones I work with, generally get discounts off the advertised rates and secondly, the Reserve Bank Governor Adrian Orr has stated that our official cash rate of 1.75 will likely stay at that rate for some while, even suggesting 2020 as a possibility.
Although banks have tried to buck the trend before, and break away from the expected correlation between the official cash rate and their interest rates, there is little doubt they will have a tough time keeping rates up while the cash rate stays this low and is accompanied by predictions of stability like we are seeing right now. It instead seems that a bit of healthy competition among lenders is taking place and lowering rates back to where the Reserve Bank expects to see them. Yay!
Of course, there are some good longer term fixed rates out there as well, but with long-term averages placing our one-year rates as the pick of the bunch, it’s the one I watch most closely and prefer to use myself. Be warned though, unless our financial system completely tanks, the longer term aim will be to get our interest rates back up to their longer term average of about 7.2% so if you’re buying a house for the first time, do put a little thought and consideration into what they might do to your mortgage repayments.
As a quick example, if your home loan is $700,000 and you get a 3.99% rate right now then your monthly payment will be about $3338 per month. If that rate then crept back to 7.2% over the next five years, you would find yourself paying $4752 per month instead.
That’s and extra $1414 per month that would have to come from somewhere and could leave you with a nice house to live in, but no food in the fridge. It reminds me of the old Ponsonby adage, “a Porsche in the driveway and no food in the fridge”. Either way, having so much debt that you can’t feed yourself is not going to be nice so just think long-term when making these decisions and you’ll still be able to fully enjoy these new lows in interest rates.
On a similar note, remember to be responsible with your Christmas planning this year and avoid short-term debt if you can. The shops are already loading up with temptations and those payday lenders are out and lurking.
DISCLAIMER: These are my opinions only and do not constitute advice in any way. Please contact a qualified financial adviser for advice specific to your situation.
