Fixed or Floating?

It’s the age-old question, should I choose a fixed or floating interest rate mortgage? And right now, with recent increases to the official cash rate (OCR), is a great time to reconsider your home loan options.

But when it comes to home loans, one size most definitely does not fit all, and that means there is no simple answer to what loan type you should choose. Instead, you need to take into account the economic conditions in conjunction with your own current situation and future goals.

The Reserve Bank of New Zealand (RBNZ) is currently returning the official cash rate (OCR) to ‘more normal’ levels after the low cash rate position adopted during the global financial crisis. Although some weak economic data suggests that the timing and pace of increases may be slower than originally expected, at this stage the RBNZ is still looking to raise the OCR to around 5 per cent.

Changes to the OCR generally flow through to the floating rate offered on home loans, but with the increases slowing down, there is the potential to make some big inroads into your debt while floating rates are still relatively low.

Meanwhile, fixed rate home loans, particularly over 2- and 3-year terms, have been falling recently, making these rates very attractive to borrowers in the here and now.

So which type should you choose?

When you are considering what type of loan is the right one for you, interest rate alone should not be the deciding factor. It is important to consider the entire home loan package when making a decision, in conjunction with your current situation and medium term goals.

Here are some questions to ask yourself to help with your decision:

  • What do I want/need from my home loan in the short to medium term?
  • What is the difference between fixed home loan rates and floating home loan rates?
  • Which home loan/s in today’s market will suit my situation?
  • How flexible are different fixed and floating home loans?
  • What interest rates are currently available from a wide range of lenders?
  • What are the costs for different fixed rate and floating rate home loans?  How do they compare over a certain period of time?
  • Are there special home loan offers available in the market?

To compare fixed and floating rate options, or to review your current home loan, make an appointment today.

Tags: , ,