As a mortgage adviser, I get asked all the time what to do with refixing mortgages. I’m probably getting asked more in recent months as there has been so much talk about this too.
When interest rates are going up it’s relatively easy because you need to have a strategy and fix your mortgage as soon as you can. With most banks, this means fixing the mortgages between 60 and 90 days before the fixed rate expires.
When interest rates are going down like they are at the moment you want to do the opposite. You want to fix your mortgage at the last possible minute in the hope that you will get the lowest possible interest rate. But you also want to make sure that you’re doing the right thing.
So if you have your mortgage coming off fixed in December or January, you’ll be looking at it and going “should I refix now or should I wait?”
The Reserve Bank dropped the interest rates by half a percent (0.50%) in November, which was a widely anticipated move. But they also highlighted that there is a very good chance that rates will drop in February when the OCR is announced again (on Wednesday 19th Feb). This is the next time the OCR is announced as they don’t have anything over January. So the expectation is it will drop another half a percent then, and may drop again in April.
The OCR is now currently sitting at 4.25%. So if you had those two drops by half a percent (0.50%) and then another quarter of a percent (0.25%) we could be sitting at 3.50% by April. And that’s pretty close to where most commentators think the OCR should be, at a range of 3.00% to 3.50% and if that does happen we would be expecting to have fixed rates at under 5.00% which would be welcome news to anybody that has a mortgage.
But coming back to the question, do you fix your mortgage if it’s coming off in December or in January?
That’s a really hard thing to decide. Generally speaking, you don’t want to leave your mortgage on floating because the floating rate is a lot higher, and then you look at it and think “but I don’t want to fix it early because I want to see the rates drop.”
One thing we do know is most of the time the banks can anticipate these rates in advance, and therefore they make adjustments and therefore the market makes adjustments in advance of many of these interest rate changes.
So my expectation would be that we might see some of the fixed rates drop a little bit in December, or more likely in January.
Now, I say that it’s more likely that this could happen in January really just because the banks are not in a competitive space at the moment. Most banks are telling us they’re very busy processing refixes, dealing with some hardship claims, and also trying to get new business on the books and therefore we’re seeing delays. That would mean we’re unlikely to see a lot of competition with the banks in December.
Often what happens over the Christmas-New Year period, the banks will have some staff working through, and the hope is that they will catch up on some of the backlog of work they have. And so we might see them hit the New Year with a competitive spirit again.
I can never be 100% sure, but I think there’s a fairly good chance that we will see interest rates on fixed loans drop a little bit in January.
They may not drop by the half a percent that we’re expecting interest rates to fall in February, but they could easily drop a quarter of a percent or more. And if that was the case, I would probably go ahead and re-fix my home loan in January and just stick with the strategy that I have.
Do you have a strategy?
Not everybody has a mortgage strategy. A lot of people have always dealt with the bank, and banks are not big on strategy. Banks like to keep things really simple, and often people have all of their lending lumped into one single loan.
That’s definitely not what’s normally recommended. It’s always a lot safer to split your lending across two or three loans, so that you never have all of your mortgage coming off fixed at any one time. That also gives you the ability to increase your payments on some of your loans, especially when interest rates are lower. While we say increase your repayments, it may be that you just don’t drop your repayments as interest rates reduce.
Doing this can help you pay your mortgage off years earlier, and of course save yourself thousands of dollars.
If you’re unsure about the strategy, just reach out. It’s something we do a lot of. It’s a simple conversation, and we can restructure your lending to suit your situation. Also, with refixing don’t forget to reach out to an adviser like myself as we can deal with the bank on your behalf and make sure that they give you a good honest interest rate.
Best of all, it costs you nothing to have an adviser helping as the banks do pay us for doing the refixes on their behalf.
In the meantime, I hope this quick update has been useful. Please feel free to share it with anybody else that you know that just likes to keep up to date, as we continue to pop updates on here, and therefore it’s always a good place to just pop back to before making any financial decisions.
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