One-year home loan rate falls - but should you take it?
Photo:
RNZ
Another bank has cut its one-year fixed term rate to 4.89 percent, the lowest advertised rate in the market. But should you take it?
BNZ said on Wednesday morning it was cutting its one-year and six-month rates to 4.89 percent and 5.29 percent, respectively.
Kiwibank is
also offering a one-year rate at that level
.
BNZ chief economist Mike Jones said based on his forecasts, mortgage rates would be broadly the same or perhaps a little lower in 12 months' time.
"But a year is a very long time, especially in the current environment where we are getting a new geopolitical event almost every week."
He said Reserve Bank data seemed to show interest in the two-year rate, as a way to get some extra certainty.
The main banks are all offering 4.95 percent for two years.
"In March and April, demand for the two-year rate went from next to nothing to about a third of all fixing."
Infometrics chief executive Brad Olsen said rates were likely to be about the same in a year's time, if people fixed for one year.
The Reserve Bank did not expect rates to be increasing at that point. At present, its forecasts are for the official cash rate to fall to 2.85 percent in March next year before rising slightly to 3 percent the following year and remaining about there through 2028.
Because the bank tends to move the rate in 25 basis point increments, this could in practice mean the rate stays on hold through that whole period.
Olsen said the rate changes being announced by banks now were small and seemed to be about jockeying for position.
He agreed with Jones that borrowers were fixing for one or two years now rather than floating or taking a six-month fix.
He said that made sense in an environment where there was no current view that interest rates should increase, although there were questions about how much further they might fall given recent strength in food and energy prices.
The drop in mortgage rates has made a significant difference to borrowers.
A $500,000 home loan over 30 years at the peak rate of about 7 percent costs $717 a week. At 4.89 percent, that drops to $612.
Someone who kept the payments the same when the rate dropped could take more than seven years off their loan term and save more than $120,000 in interest costs.
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