Two year fixed rates best home loan option

Monday 5 July 2004

Economists currently think short-term wholesale interest rates, and therefore floating mortgage rates, are heading higher, especially since the New Zealand economy has been growing faster than expected and global growth is picking up.

By The Landlord

Anthony Byett, chief economist at ASB Bank, reckons variable home loan rates will probably reach between 8.5% and 9% within the next 12 months.

ASB and three of the other four major home lenders currently charge 8% on their floating mortgage rate while Westpac is charging 8.1%.

Bank of New Zealand chief economist Tony Alexander says the Reserve Bank’s Official Cash rate (OCR) could peak at 6.25% "with a risk of something a tad higher.

But that’s the easy bit. The majority of home lending in New Zealand is on a fixed-rate basis.

With longer-term rates more influenced by what’s happening to interest rates globally and particularly in the US, last week’s move by the US Federal Reserve to raise rates for the first time in four years seems to imply longer term rates will also move higher.

Alexander’s advice to borrowers is that fixing for two years currently is the best option.

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