Home loan report: Make it short!

While the past week hasn't seen a huge number of changes in home loans, we have seen an easing trend over the past month with fixed rates coming down by as much as 50 basis points.

Amongst the recent economic news has been some gloom, falling growth, talk of a recession, high inflation, a housing market slowdown and weakening employment. While the news is, at face value, not particularly cheery, it is generally good for mortgage rates.

Interest rate watchers will be looking keenly at the Reserve Bank's July Monetary Policy Statement (July 24) and expecting to see the official cash rate come down, or the bank indicating it will come down to help speed up the economy.

Even if a cut isn't made, talk of a cut is likely to push wholesale interest rates down in expectation, thus flowing through to home loan rates.

What’s the best deal at the moment?

The consensus of opinion about term is a preference of short over long. That is go for something up to say 12 months as the weight of probability is that rates will come down, and maybe quite quickly as the year progresses to counter the poor economic climate.

Those brave enough may even consider taking a floating rate to get them through to the easing cycle then swap out into something fixed. However the key risk with this strategy is that floating rates sitting up near 11% at present are pretty pricey.

As for long-term rates, well no one is that keen on going right out to the five-year term as it is at a historically high level and all the indications suggest its only movement will be downwards.

This makes the Kiwibank three-year rate quite an interesting proposition. While the rates are sharp, three-year generally isn’t a hugely popular term and it is outside the preferred zone of terms of up to 12 months.

Currently the big bank standard rates are pretty similar across the terms. The odd ones out are ASB Bank which has its floating rate at 10.75%, 20 basis points lower than its competitors, and its three-year fixed rate is five points higher at 9.10%.

The other bank with “different” standard rates is BNZ which has slightly higher rates for all its fixed terms, except its three-year rate which is 9.09% compared to 9.10%. Its headline, Classic, two-year fixed loan product likewise is just one basis point lower than the other banks’ offerings.

Both Kiwibank and TSB Bank have special rates for three-year terms where the borrower has minimum 20% equity in the deal.

To check and compare home loan rates go to the landlords.co.nz homepage and click on Mortgages.