Where do you want the OCR?

Higher
5
29%
3% is fine
6
35%
Lower
6
35%
 
Total voters : 17

Re: Official Cash Rate Cut To 3%

Postby psychavoc on Wed 25/Mar/09 10:38am

Hmmmmm. *ponders*

4 year is at 6.49% at the moment with our bank, with 5 years at 6.75%. Floating at 5.99%.

Pete - what portion would you put on floating and what on fixed? (if it were you of course) :eh:
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Re: Official Cash Rate Cut To 3%

Postby rockit on Wed 25/Mar/09 10:44am

C- don't just take your banks rates - get out there and talk to other banks or mortgage brokers. You should be able to get a better deal than advertised rates!
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Re: Official Cash Rate Cut To 3%

Postby psychavoc on Wed 25/Mar/09 10:48am

rockit wrote:C- don't just take your banks rates - get out there and talk to other banks or mortgage brokers. You should be able to get a better deal than advertised rates!

We've already signed all the documents though :eh:

Besides, we've just done a bank swap because our old bank wouldn't even look at us without a 20% deposit. Ironically, the old bank has a slightly lower 5 year interest rate, but given they wouldn't lend to us in the first place, it's sort of a moot point.
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Re: Official Cash Rate Cut To 3%

Postby sweet_P on Wed 25/Mar/09 11:02am

Kiwibank says they'll beat (or not be beaten - so match?) any other "major" bank over the first 5 years of a mortage - so if another bank offers a lower 5 year rate, then at the least, they'll have to beat (or match) that.
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Re: Official Cash Rate Cut To 3%

Postby Jono on Wed 25/Mar/09 11:39am

...when we took out our current mortgage (all floating, revolving credit thingie) we got a .75% discount off the floating rate (with BNZ). A friend recently got a .5% discount from National just for saying that they had talked to KiwiBank.
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Re: Official Cash Rate Cut To 3%

Postby neels on Wed 25/Mar/09 12:15pm

psychavoc wrote:Hmmmmm. *ponders*

4 year is at 6.49% at the moment with our bank, with 5 years at 6.75%. Floating at 5.99%.

Pete - what portion would you put on floating and what on fixed? (if it were you of course) :eh:

The general theory behind having a floating part of your loan is that you can pay it off if you have the means, but get a cheaper interest rate on a fixed rate.

If the floating rate is cheaper than the fixed, leave it all floating. When the floating rate gets to be the same or higher than the fixed (or the long term fixed rates start to head upwards) fix part of your loan.

A floating loan should only be for the total amount you could reasonably expect to pay off completely in the term of the fixed loan, otherwise it's just costing you more than it needs to.
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Re: Official Cash Rate Cut To 3%

Postby way_downsouth on Wed 25/Mar/09 2:43pm

neels wrote:The general theory behind having a floating part of your loan is that you can pay it off if you have the means, but get a cheaper interest rate on a fixed rate.

If the floating rate is cheaper than the fixed, leave it all floating. When the floating rate gets to be the same or higher than the fixed (or the long term fixed rates start to head upwards) fix part of your loan.


So you mean now? Long term rates are beginning to rise.

neels wrote:A floating loan should only be for the total amount you could reasonably expect to pay off completely in the term of the fixed loan, otherwise it's just costing you more than it needs to.


Really? My opinion is that you should always have some revolving credit and be working within that to deal with your day to day fluctuations. It is better to do that than have savings in the bank day to day. It is also additional motivation to pay down.
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Re: Official Cash Rate Cut To 3%

Postby ThingOne on Wed 25/Mar/09 2:54pm

These are unusal times, I doubt we will see interest rates this low for a long long time.
So get it while its going.

And I agree with Pete, all your "savings" should be offset against a floating mortgage, its basically like getting a risk free tax free return on your money. Its like a 9% risk free investment.
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Re: Official Cash Rate Cut To 3%

Postby j2hyde on Wed 25/Mar/09 3:07pm

ThingOne wrote:And I agree with Pete, all your "savings" should be offset against a floating mortgage, its basically like getting a risk free tax free return on your money. Its like a 9% risk free investment.


Huh? You mean by repaying your loan it's a risk free investment?

Either you're really confused, or I am :blink:
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Re: Official Cash Rate Cut To 3%

Postby iodi on Wed 25/Mar/09 3:13pm

ThingOne wrote:...all your "savings" should be offset against a floating mortgage...

Yes, but with the caveat that you should always have a reasonable fund of cash available in case of emergencies - like unexpected costs or losing your job. The latter is happening to many people at the moment, who then run the risk of not being able to pay their bills and possibly losing their home. As mentioned earlier, this is where a revolving line of credit can be an efficient approach.
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Re: Official Cash Rate Cut To 3%

Postby ThingOne on Wed 25/Mar/09 3:17pm

j2hyde wrote:
ThingOne wrote:And I agree with Pete, all your "savings" should be offset against a floating mortgage, its basically like getting a risk free tax free return on your money. Its like a 9% risk free investment.


Huh? You mean by repaying your loan it's a risk free investment?

Either you're really confused, or I am :blink:


Yep.. A lot of people maintain savings accounts whilst having a mortgage, this is not a good idea as you are paying tax on the interest plus the risk of the investment failing (albeit small if in a bank savings account), so if you "invest" your savings into your mortgage you get a risk and tax free return in that you pay less interest. for example,
I use 10% for arguments sake as its easy to calculate.

You have $100k mortgage @10%
You have $10k savings @10%

You would pay $10000 in interest on your mortgage for the year
And you would recieve $1000 in interest less $333 tax on the savings account , net of $666 interest on savings
so net return for the year is $10000 less $666 = $9334 interest paid to the bank for the year

NOW INSTEAD if you had invested your $10,000 into your floating part of your mortgage you would only pay interest on $90,000 = $9000 per year.

So you are $334 better off for the year, zero risk. And it reality it would be a lot more as savings rates are a lot lower than mortgage rates.

if you ever want your savings back you just draw it down against the floating/revolving part of your mortgage.
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Re: Official Cash Rate Cut To 3%

Postby way_downsouth on Wed 25/Mar/09 3:21pm

iodi wrote:
ThingOne wrote:...all your "savings" should be offset against a floating mortgage...

Yes, but with the caveat that you should always have a reasonable fund of cash available in case of emergencies - like unexpected costs or losing your job. The latter is happening to many people at the moment, who then run the risk of not being able to pay their bills and possibly losing their home. As mentioned earlier, this is where a revolving line of credit can be an efficient approach.


Completely agree - even if things aren't as extreme as the examples above, it is worth having a buffer (car breaks down, expensive dentist bill).

I would encourage insurance for anyone where there income is vital to the mortgage.
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Re: Official Cash Rate Cut To 3%

Postby sifter on Wed 25/Mar/09 3:31pm

way_downsouth wrote:
iodi wrote:
ThingOne wrote:...all your "savings" should be offset against a floating mortgage...

Yes, but with the caveat that you should always have a reasonable fund of cash available in case of emergencies - like unexpected costs or losing your job. The latter is happening to many people at the moment, who then run the risk of not being able to pay their bills and possibly losing their home. As mentioned earlier, this is where a revolving line of credit can be an efficient approach.


Completely agree - even if things aren't as extreme as the examples above, it is worth having a buffer (car breaks down, expensive dentist bill).

I would encourage insurance for anyone where there income is vital to the mortgage.


When I started out, I had to borrow $185k. We put $155 on 3 year fixed, and the rest floating. We immediately dumped all our leftover "savings" into the $30k overdraft, to the tune of about $5k. So we started with a $5k buffer, and a $25k target.

Another nice thing about this arrangement, is if your parents have cash savings, you can split the after tax deposit rate and the floating mortgage rate, and work out an in-between arrangement that works for you both. Provided you don't spend it...

I think I'd do similar again, but fix for longer. Rates are unlikely to go much lower. You can infer the banks' predictions by the forward rates implied by the current schedule. i.e. if the 3 year fixed is higher than the 2 year fixed, they're expecting the 1 year rate in 2 years to be higher than the current 2 year rate. If you reckon you can out-predict the banks, then good luck to you....
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Re: Official Cash Rate Cut To 3%

Postby specializedman on Wed 25/Mar/09 3:36pm

Gah Now I have money in the bank the interest rate's drop...

I guess it's alright for those of you without fixed mortgages though.
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Re: Official Cash Rate Cut To 3%

Postby neels on Wed 25/Mar/09 4:12pm

way_downsouth wrote:
neels wrote:If the floating rate is cheaper than the fixed, leave it all floating. When the floating rate gets to be the same or higher than the fixed (or the long term fixed rates start to head upwards) fix part of your loan.


So you mean now? Long term rates are beginning to rise.

When there is no longer an advantage in having your mortgage at the floating rate. Its a matter of how much the fixed rate is going up and how much it's going to cost you to fix it vs how much you are saving by having it floating at a lower rate. Right now is an unusual situation because it is not normal for fixed rates to be higher than floating rates.

way_downsouth wrote:
neels wrote:A floating loan should only be for the total amount you could reasonably expect to pay off completely in the term of the fixed loan, otherwise it's just costing you more than it needs to.


Really? My opinion is that you should always have some revolving credit and be working within that to deal with your day to day fluctuations. It is better to do that than have savings in the bank day to day. It is also additional motivation to pay down.

Revolving credit yes, but if the interest rate is higher than your fixed rate then it should only be the amount that you can pay off in the term of your fixed mortgage. There's no point in having $50k on revolving credit at 6.5% and a fixed loan at 6% if you're only ever going to get the balance down to $25k, you're just forking out an extra 0.5% on the 25k that you won't be able to pay off.
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