To fix our home loan or not to fix our home loan, that is the question…
To fix our home loan or not to fix our home loan, that is the question … also when to fix! Of course there are no right or wrong answers to this; there are also different reasons why people fix their home loan interest rate. For some people it’s to try and “beat the bank” … I’ve successfully done this on a number of occasions … by good fortune, but is it a valid reason for fixing? Personally I think not. So then what is a good reason? In my view the primary one is to have some financial certainty over your home loan payments for a period of time. For example if you fix for three years you are certain of what your home loan payments will be for that timeframe, and all else being equal no you will not be put under additional financial strain if rates rise.
Another valid reason is to look at the economic indicators and get a feel for what might happen to interest rates. This is exceedingly complex as the funding for longer term fixed interest rates comes largely from overseas, so it is necessary to look at the global indicators as well as the local. So what are these global indicators at present? Well the US appears to be printing less money which is pushing up long term bond prices, this can have a direct impact on the fixed home loan rates here in New Zealand and we are beginning to see some rises in 2 to 5 year fixed interest rates. Locally, whilst the Reserve Bank says it does not intend to increase the OCR until next year it is also under increasing pressure to slow down the Auckland housing boom; though it may have achieved this with the reduction in low equity lending.
In Summary, I feel it is time to take a look at whether we fix our home loans. I have just purchased a new home myself and I have fixed some portions (suffixes) and left others on floating for now. Why, is it because I’m trying to beat the bank? No … but because the interest rates are historically low, at a rate I’m comfortable with in the longer term, and to give me financial certainty for a set period of time. Was it a good decision, only time will tell, but I can now longer get the long term rates I fixed at, they have risen since then. So, should you do the same? Not necessarily, but maybe it’s time you give it some thought and decide what is best for you.