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RBNZ increases OCR, NZ banks increasing interest rates, should you break and refix?

Yesterday was a big news day in New Zealand. Jacinda announced a return to an Orange COVID traffic light setting just in time for the Easter long weekend. More significantly though, the Reserve Bank of New Zealand (RBNZ) increased the OCR by 0.5 percent to 1.5% surprising some analysts and meeting other analysts predictions. ANZ was the first bank to react by increasing their interest rates, and other banks have already followed them.

The 3 big questions on mortgage holders’ minds at the moment:

  • How much further will interest rates rise?
  • Should I break my current lower interest rate to refix on something higher?
  • On what term/rate should I refix?

There’s no doubt that inflation and the economy, both locally and globally, are impacting interest rates. Your mortgage costs are going to go up, certainly in the short term, and maybe even for 5 years or longer. I won’t dive into the reasons this is happening but the reality is that all signs are now pointing up.

Blandon recorded a video last night (13th April) to run you through what is happening and what you can do to protect your interests.

So, what can you do to protect yourself as best you can?

If interest rates hit 6% for 12 months or 10% for 5 years, you want to make sure you will not panic or be forced to sell. You can assess if breaking your current mortgages’ fixed terms makes sense to lock in new rates now.

If you have less than 6 months to go on your mortgage term, then you could follow Blandon’s example, as he just broke one big tranche of his mortgage to refix. With his clear suggestion that it is prudent to assess your situation now. If you have longer than 6 months left there is a chance that waiting things out is financially going to make more sense.

For principal and interest home loans (usually the family home) then interest rate averaging is still a good strategy to consider applying, otherwise, you are trying to time the market and make predictions that are often likely to backfire.

If you have a large interest-only mortgage (investment properties) then you may want to consider longer-term options to protect yourself from the downside risk and lock in more certainty. This might mean you refix for 3-5 years but just make sure you understand that the interest-only period and the fixed-rate period are not the same things and you don’t want to be switching to principal and interest mid (fixed) term without your prior knowledge.

You can hold on to what you have in place now and take your chances when your renewals come around (which is what I am doing because my rates are already low and fixed longer-term). Your budgeting may need to go into overdrive and you may want to book a free wealthhq session that helps you create a financial road map and you’ll have more budgeting spreadsheets to complement our mortgage calculators to help you make these decisions.

Andrew Malcolm, and Blandon Leung

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