Waiting for the next home loan rate war

This year the competition is expected to be particularly fierce as there is such a huge volume of home loans coming up for refinance. These loans are generally ones which were written two-years ago when the Bank of New Zealand started its Unbeatable campaign.

If you are one of these people coming off a cheap two-year fixed home loan rate your interest bill is about to go up. Current rate two-year mainstream bank rates are around the 8.20% mark.

The strategy you take will depend on a couple of issues, namely how much risk you are prepared to take on and how much time you have up your sleeve.

With the latter point if you can hold off refinancing until the Spring campaigns start then that is worth doing.

In terms of how much risk you want to take on the basic argument goes like this. For the less risk averse borrower you may opt to go for a shorter rate of either one year or 18-months. These are slightly more expensive than longer terms, however a prevailing view is that in a year's time interest rates will start falling by significant margins. At that point you can refinance at lower rates.

If you are more conservative you could consider going for longer-term rates (three to five years). The further out you go the lower the rate. However these rates are not cheap by historical standards.

A third, hybrid option you have is to split your loan so some is on one year and the rest on two years. That lessens your interest rate risk.

Floating rates are expensive at the moment and won't fall until the Reserve Bank cuts rates. This is expected sometime in the middle of next year. A sensible strategy is to keep a small portion of your loan on a floating rate so if you have any extra funds you can pay off some principal without having to make penalty payments - which you would have to do if you it was a fixed-rate loan.

Currently floating or variable rates range from a low of 8.50% to a high of 9.95%, with the mainstream banks sitting at the high end of the range around 9.55%.

One year fixed rates go from Southern Cross Building Society’s 7.85% to GEM Home Loans on 8.95%.

Southern Cross also has the lowest two-year rate at 7.75%, and the highest rate on offer is 9.25%. The mainstreet banks are at the low end of this range around 8.20%.

In the five-year fixed rate market small non-bank lender Silver Fern is the lowest at 7.65% and NZ Mortgage Funds is at the top end with 8.29%. Big banks are around 7.85% - 35 basis points lower than what they are offering for two years.

To see a comprehensive list of up-to-date home loan rates and compare what’s on offer go to www.goodreturns.co.nz