So today the Reserve Bank cut the OCR by 0.50% as expected, and while that gets all the headlines it’s always the Monetary Policy Statement that interests mortgage advisers as this helps predict what might happen in the near future.
Good News!
It’s always good to talk about the good news first, and that’s all about having lower interest rates. That’s good news for anyone that is borrowing money like home owners and businesses. It’s not so good for retirees who have money in bank accounts to earn interest.
The other good news is that inflation is back within the target range. Inflation is at 2.20% and that means that it’s easier to make a decision to cut the interest rates (OCR) knowing that if Kiwis spend a bit more then that’s okay.
BUT – the Bad News
The real reason that the Reserve Bank is cutting interest rates is it needs to get Kiwis spending more to support business which will also help the Government with an increased tax take.
When the Reserve Bank cuts the interest rates they expect that we will all have more money and will therefore spend that money; however we know that a lot of Kiwis have been really struggling and so many of us will try and save or pay off debt rather than spend. If this happens then the Reserve Bank will not achieve what they want and that could lead to them having to offer further cuts.
What Should We Do Then?
Firstly we should do what is right for us.
We should make sure that we have the best home loan (even if it means switching banks), the appropriate loan structure and of course the best home loan interest rates that we can get.
The Best Home Loan – not all home loans are created the same and so it’s worth reviewing what you have and compare to what you should have. There is a very good article called “What Makes a Good Home Loan” which explains the features that you should look for. It also highlights the mistakes people make when getting a home loan.
An Appropriate Loan Structure – have you considered the loans like revolving credit and offset loans? Generally people will still have most of their mortgage on fixed term loans and potentially split over two or three but then having the extra flexibility of a revolving credit or an offset loan makes good sense. Your mortgage adviser can help you with a loan structure and strategy.
Getting The Best Home Loan Interest Rates – this is always the aim! Again, it’s always a good idea to engage an adviser to help as they know what you should be offered, and know what the other banks offer.
