If I had a dollar for every time I was asked what interest rates would do.
I have never been the fortunate owner of a crystal ball, yet I am constantly asked “what are interest rates going to do over the next couple of years." The reality is, I don’t know and nobody genuinely does. People that are far more learned in the area of economics provide any prediction with a caveat.
The traditional Kiwi strategy has been to fix for 2 years at a time, giving some certainty, while taking advantage of the “near to” best rates available. At Loan Market we have been leaning more toward the 1 year fixed rate strategy in what has been a steadily declining rate environment over the past 3 years.
With interest rates as low as 2.65% for one year and 2.99% for five years with no upward rate pressures there really are no bad interest rate options right now.
Everybody’s circumstances are different and for those with little surplus income after paying your mortgage and living expenses, there is a strong argument to say that the longer term rates now represent great value.
There is also nothing to stop you from splitting your debt and fixing the loan in 2 or 3 portions for different terms. As an example, half of your debt for 5 years at 2.99% and half for one or two years at 2.65% or 2.75%.
If you are the more conservative type and don’t like taking risks, the current long term rates do certainly provide value. However, be aware that you are locked in for that term and breaking to repay early can come at a significant cost.
What we do know is that now is a great time to be paying debt down, as your current rate comes up for renewal and drop. Keep your payments the same and this will help you accelerate the reduction of your debt. Even increasing your payments by as little as $10 per week will have a powerful impact in such a low interest rate environment.
Talk to us, we are happy to discuss your options and help you to consider what's best for you.