Mortgage rates are like a seesaw at the moment with long rates on the up while the short end is down.
Right now the fat guy is sitting on the end of seesaw that is keeping short term rates down and the longer ones stuck up in the air, seemingly waving his feet around.
If you believe the Reserve Bank’s recent statements then this situation is going to continue for some time.
Reserve Bank governor Alan Bollard said at the previous OCR announcement: “We expect to keep the OCR at or below the current level through until the later part of 2010.”
Next week’s official cash rate announcement is shaping up to be an interesting one. Previously, economists were almost unanimous that the central bank would take its cash rate even lower than the 2.5 per cent it currently sits at.
Some views are changing and suggesting that there may in fact be no cut to the OCR on June 11. Much of the reasoning behind this emerging discussion is that some of the economic data, notably in housing, has become much more positive. Overseas there continues to be discussions about the “green shots” of a recovery emerging.
However the other factor which can’t be ignored is that the Reserve Bank has previously cut its OCR expecting lenders to reduce their floating rates by the same amount, as they have traditionally done for many years.
But that isn’t happening. Not one of the banks has nudged their floating rates downwards since that 50 basis point cut. And none look like doing so either.
If that is their reaction then there is little point in the Reserve Bank making further cuts.
What’s the best deal at the moment?
It seems pretty clear that doing short term rollovers using six or 12 month terms is the cheapest option at the moment. But one needs to be careful as rates could rise quickly without warning.
These shorter term rates are much more attractive than floating at the moment.
Currently major bank floating rates sit in a tight band from 6.40 per cent to 6.49 per cent.
Six month rates through are all grouped around the 5.50 per cent mark and one-year fixed rates are at similar levels.
When you look at comparison tables or rates the banks are clearly the market leaders and at the moment Westpac has the lowest standard short term rates, rather than the likes of Kiwibank.
Tags: home loan, home loan rates, interest rates, Kiwibank, OCR, Westpac
