Short-term interest rates looking good

Interest rates have been bobbing along at historically low levels for a while now and many homeowners are floating on variable rate mortgages.

Economists say getting the timing right on the move to a fixed rate is a bit like a lottery draw.

It’s unlikely that anyone will hit the true bottom of the interest curve except by pure luck.

But when short-term fixed rates are quite a bit cheaper than floating, it makes sense to put at least part of your borrowing on to these lower rates just for the money you'll save.

According to mortgagerates.co.nz, most floating rates are sitting between 5.7% and 6.2%. You can likely get a bit of a discount off this with some negotiation but they are still well above the 5.25% on offer for loans fixed over two years.

And some brokers are saying they are getting rates below 6% for five years for their clients, so it’s well worth looking at the longer-term options.

Of course, there’s always the threat that interest rates will rise in the meantime but it looks unlikely that the OCR is going to move anywhere any time soon.

The Reserve Bank has indicated that it would rather deal with any house price inflation with macroprudential tools such as loan-to-value restrictions rather than risk dampening the entire economy with the blunt tool of rates hikes.

It is definitely worth putting some thought into your rate strategy this year. A mix of six-month, one-year and two-year loans could be the solution to provide certainty, cashflow benefits and the freedom to nab good long-term rates as they become available.