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 way_downsouth on Wed 25/Mar/09 4:44pm

neels wrote:
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.

neels wrote: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.

This is not as simple as it appears. If you need to fix because you cannot handle the fluctuations in rates, then you want to get it as low as possible.

Also, I understood that usually floating rates are lower than fixed and we have just returned to a normal yield curve, as opposd to the inverse yield curve that we have been operating under. The reason that this is the case is thre is less market risk to banks under a floating scenario vs a 5 year scenario, so the risk is priced into the interest rate. Happy to be corrected on this one, if it can be explained.

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.


Completely agree. I would however intend to operate within the revolving credit the whole time, hoping to get close to 0, for goal reasons and keeping in mind the fluctuations.
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Re: Official Cash Rate Cut To 3%

Postby j2hyde on Wed 25/Mar/09 4:48pm

ThingOne wrote:
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....snip...
if you ever want your savings back you just draw it down against the floating/revolving part of your mortgage.


Oh yeah, I understand that - and I agree its a good idea. But that's not the same thing as a risk free 9% investment. Anyway, as you were :)
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Re: Official Cash Rate Cut To 3%

Postby nostromo on Wed 25/Mar/09 8:50pm

ThingOne wrote:
psychavoc wrote:
nostromo wrote:Any bets on what will happen to actual mortgage rates?
We have fixed mortgages that start to roll over next year, but our accountant is telling us we will be better off to break our mortgages on a rental property we own now.
He says this for two reasons firstly he maintains interest rates will not go lower, and will start climbing again.
Secondly for us he says the break fee is tax deductible (I never thought about that).

But how he can predict the future I don't know.

Time to fix now? http://www.nzherald.co.nz/business/news ... d=10563217

We've just signed up for our first mortgage - currently on floating but wondering what rate/length to fix at now :huh:


Now is the time to refix for as long as possible, 5 Years would be the best bet. I dont believe rates in NZ will get any cheaper even if the OCR is cut again,
There is a slight possibility you will see a 5 year below 6%, but theres a gamble with waiting to see.
If I had a mortgage I would be fixing for 5 years.
that said you can get a mortgage in the UK for under 1%

PLEASE NOTE.. Dont take my advice as gospel, find a reliable mortgage broker and/or subscribe to some of the economic emails sent out by the bank economists. I find Tony Alexanders one from the BNZ quite good.

Just did a bit split here as a bit of a hedge, put some on 5.99 for 3 yrs and some at 6.4 for 4 yrs. This was on Monday morning before the rates went up in the afternoon, Jeeze don't know how we managed that normally whatever I do is the wrong thing.
Fixing for longer carries less risk as you know what your mortage repayments are for the next few yrs but you pay a higher rate for that lowered risk. Me personally I wouldn't fix for 5 yrs, but wether you should do that depends on your own situation but I'm just glad I'm not like the guy at work that fixed for 5 yrs about 6 or so months ago.
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