Long term interest rates of two to five years are currently lower than six month and one year rates. This indicates that banks expect interest rates to fall in the next year or two.
If you fix for a shorter term, such as one year, you’ll have a slightly higher rate right now, but you’ll be better prepared to take advantage if interest rates decrease in the next year.
If you fix for 2+ years, you’ll lock in a lower rate but you may not be able to benefit right away if interest rates decrease.
Another option that many mortgage brokers and economists suggest is to break your mortgage into portions. You could, for example, have half on a one-year fixed rate and half on a three-year fixed rate. This would give you some of the benefit of lower long term rates, but still allow you the opportunity to take advantage if interest rates are lower in a year.
Unfortunately even New Zealand’s sharpest economists can’t tell you what’s right for your mortgage, or where interest rates will be in the future (with any certainty). That’s why you should always structure your mortgage in a way that suits you. If you value security and certainty those longer rates may be attractive. If you’re willing to gamble that rates will be much lower in a year, it may be worth choosing shorter term rates.
Most importantly, it’s always a good idea to get professional advice. Speak to a mortgage broker or financial advisor and they’ll be able to help you structure your mortgage in a way that’s tailored to you and your financial situation.
DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute a financial advice service. The article is only intended to provide education about the New Zealand mortgages and home loans sector. Nothing in this article constitutes a recommendation that any strategy, loan type or mortgage-related service is suitable for any specific person. We cannot assess anything about your personal circ*mstances, your finances, or your goals and objectives, all of which are unique to you. Before making financial decisions, we highly recommend you seek professional advice.
