Why low Reserve Bank OCR rates doesn’t necessarily mean low mortgage interest rates
Most people believe the OCR set by the Reserve Bank of New Zealand affects mortgage interest rates, but that isn’t quite the case, says experienced Auckland (Takapuna based), mortgage broker Christine Lockie.
“The Official Cash Rate set by the Reserve Bank of New Zealand will determine short term fixed and variable mortgage rates because they are used by the Reserve Bank to control inflation. But the long term fixed mortgage interest rate are determined by the assessed long-term cost to buy funds from offshore.
“The fixed rates may rise if the banks expect an increase in the cost to purchase funds offshore. An increase in cost of funds will put pressure on longer term fixed interest rates.
“New Zealand sources a lot of its funds offshore, and with the European economic crisis and a stagnating American economy, those funds may get more expensive because money is being pumped into those economies leaving less available funding to purchase – i.e. liquidity.
“New Zealand is a small economy so we don’t benefit from cheapest funds and we’re not a high priority, like the bigger countries.”
Christine says it is important that New Zealanders work with a mortgage broker to structure their mortgage interest rates according to what is going to suit their personal circumstances.
“Some people want peace of mind and will fix their interest rates for two to three years so they have certainty. Others like to take a bit more risk and go with variable rates because they’re very good at the moment.
“Bank economists are predicting a slow recovery, with possibly the only stimulus coming from the Christchurch rebuild and our primary product exports – even those are expected to be slow due to the worsening international economic situation.”
Christine Lockie is an NZMBA Authorised Financial Advisor and mortgage broker – based on Auckland’s North Shore in Takapuna – with a 20 year track record in helping people to get the property and business finance they need at competitive rates and on favourable terms.
For more information or an informal chat, contact Christine today.
Getting to "yes" is just the tip of the iceberg when it comes to mortgage borrowing
By Christine Lockie (NZMBA)
Make sure you look before you leap is sound advice for borrowers, but all too often falls on deaf ears because we get caught up in the excitement of hearing our application has been approved – suddenly we become more focussed on buying the property, than on the terms and conditions of the loan.
I often say that a good mortgage broker is like a "debt adviser". Sourcing funding is as much about getting to "yes" as it is ensuring the terms and conditions are acceptable – anything less is digging yourself into a hole you may not be able to get out of.
- Understand what debt you are getting into.
- Understand how the debt is structured and if you can manage it through good times and bad.
The structure of your debt – which may included revolving credit, fixed or floating rates or a combination of both – will determine if owning your own home or investment property stays a dream or becomes a nightmare.
Don't live for the moment when it comes to debt. Think long term!