Economists offer their home loan rate picks
Interest rates have risen fast over the past year and it is expected that the official cash rate (OCR) could jump up again this month.
So where does that leave borrowers? ASB economists said the best home loan rate depended on individual circumstances. ‘‘Everyone wants to secure the ‘best’ deal for their mortgage,’’ they said.
‘‘Working out what strategy is best is easier said than done, given the number of influences impacting on mortgage interest rates, and individual borrowers’ differing requirements for flexibility and certainty.’’ They said it was not always as simple as opting for the lowest rate on offer.
At the moment, the big four banks are offering one-year rates of 5.99%, two-year rates of between 6.09% and 6.19% and three-year rates of between 6.19% and 6.29%. ASB economists said they expected fixed rates could peak at between 7% and 7.5% over the year ahead while floating rates could get to about 9%.
‘‘However, the outlook is far from certain. Our base expectation is mortgage interest rates over the next decade will be around or potentially below the long-run averages of the past 20 years.’’ A strategy of fixing for a series of one-year terms had proven cheapest over recent times but anyone planning to do so would need to budget for periods of higher rates, they said.
ASB chief economist Nick Tuffley said some of the longerterm fixed deals could work out well. ‘‘Looking at what will provide the cheapest cost over the next five years, fixing around two or three years at present appears the cost-minimising option, based off our view that the OCR will reach 5.25%.
‘‘Some considerations for these terms is that if the Reserve Bank cut the OCR sooner than the second half of 2024 – our current assumption – then borrowers would miss a potential opportunity to benefit sooner from declining interest rates, though a two-year term will enable that benefit to occur sooner. But if inflation pressures keep proving to be unexpectedly persistent, then a two-year term won’t protect from higher interest rates for as long as a three-year term or an even longer term.’’
Independent economist Tony Alexander said if he were fixing a loan he would go for a term of one or two years, based on the expectation that the Reserve Bank would suppress inflation eventually and long-term rates would move down in the second half of next year.
It was not always as simple as opting for the lowest rate. ASB economists