– Hello! It’s Connie from Prosperity Finance. I hope you’re well. Now we are in November, almost December, it’s time for another interest rate update. Now a week ago, we all heard that big news which is Reserve Bank keeping the OCR unchanged at 1%. It really comes as a surprise to a lot of people and even to bank economists. ‘Cause they all predicted there will be a cut at this time but it didn’t happen. And the Reserve Bank Thinks the current economy is okay, we’re still going to monitor, it’s not really need another cut.
Now, once the announcement was made, we had a flood of phone calls coming in from clients and prospects and wondering what the interest rate… Is going to be. Well, we told them, “If you want, wait for a few more days “cause that’s normally how long it takes “for the bank to react to Reserve Bank news.” Now, the big news was, on Monday last week, most of the banks start dropping their 1 year rates.
At the moment, almost all the banks; Australian bank and the Kiwi bank, has kept their 1 year rates at 3.39%. Now, a week ago, that was 3.55%. So that was a really big drop. That really surprised us because we thought maybe the bank would drop a bit given this time of the year. The bank wants to do some campaign to gain some market share but we never expected such a big drop. So that was good news.
Difference between Chinese banks and Australian bank
A week ago, the 2 years rates was cheaper than the 1 year rates and a lot of people struggled. Should I fake for two ’cause it looks cheaper? But maybe one because I predict some cuts in the near future? But now, the decision is easier because 1 year rate is the cheapest. Now, the Chinese banks. There are three Chinese banks in New Zealand. They still haven’t made any changes to their rates. So, a week ago, their rates was at 3.15%. Now, it’s the same. So the difference between Chinese banks and Australian banks The difference is actually smaller. Say a week ago, Australian banks 1 year rates was around 3.55% and Chinese banks offer 3.15% So you can tell, that’s 0.4% difference. But now, is actually very small. Now especially if you take into account Australian banks cash back offer ’cause Chinese banks don’t offer cash back.
So probably work out the same. I don’t know how the Chinese banks will review their interest rate strategy to keep the momentum. Who knows? We’ll keep you up to date. That’s the current rates for 1 year. The 2 year rates is kept at 3.45% for most of the banks. A couple banks actually increased slightly to 3.55% Now, 6 months, ’cause some people ask for 6 months ’cause they might think 6 months is better ’cause then they can re-fix a lower rate Sooner but the six months rate is around 3.99%. So, it’s actually quite a big difference from the 1 year rates. A lot of people still go with the 1 year rates. Now, if you are thinking of repaying your home loan Within the next 12 months, probably consider 6 months. For example, if you are selling your home, fix it at a 1 year fixed term and then you have to repay earlier, you have to pay break fee probably.
Cash flow And Interest Rate
You’re not saving anyway. Who should consider more than 1 year rates? Well, there’s a few scenarios. It’s more about stability of your cash flow. If you worry about your repayment obligation then it’s best to allocate some of your loan to a longer term. The scenario including if you’re expecting a newborn and your partner will stay home, stop working for a few months or up to 12 months and therefore, your income will be less but outgoing will be more. That will be a common scenario or you’re looking about changing jobs especially from employed to self-employed. Your income will probably not be as much as before in the first few months so, certainty is more important. Or maybe you’re an investor, you have large loans and as investors, we are running marathons. We want to make sure over the next few years, you can repay your loan on time, no issues. Even when the interest rate rises, you can still cover any shortfall so, make sure that you have that kind of certainty over your cash flow.
If you have a big loan, split them across different banks and let them come off at different times of the year. That will help you be stress-free. Okay so, that’s about it. What else? If your current interest rates is quite high and you’re thinking, “I still have over a year to come off that fixed term. “Should I break or not?” Well to be honest, we have a few scenarios and normally the break fee will work out similarly to if you finished the fixed term. The difference is less than a hundred bucks so not much difference. But if you have been with your current bank for over three years, maybe we can consider a refinancing scenario. The cash back would cover that break fee, or more than the break fee.
Making the decision to refinance is you can’t just reconsider the rates aspect ’cause you may potentially lose some of the features from the current lender or relationship or whatever it is. So you need to take in
account the big picture. The best way would be to engage a professional mortgage broker and let them help you navigate all the options. Also if you are property investors, your interest rates especially if you bank with BNZ, you will notice your rate won’t be as good as owner-occupier. So they probably have about 0.25% to 0.3% Higher than the owner-occupier rates so just bear that in mind and it’s really hard to negotiate any discount. That’s just how BNZ prices their investment loan. Yeah, so, just bear that in mind.
Economists Expect Steps
It’s not that they don’t like you, it’s just the way they work at the moment. Now, economists expect
there will be a cut in Feb. But also the bank is Still working with Reserve Bank to see if the capital will increase. If it goes ahead, then that means the bank has to hold more capital and put that money aside in case there is an economy downturn. Which means that costs are going to go up so what does mean to us? It could potentially Pass any cut To the borrowers or they may even increase the interest rate so, just be aware that’s possible.
That’s the other side of the equation. Okay, that’s enough for today. That’s for November interest rate update. Please follow us on YouTube cause we will have really regular updates for any new policies or
any interest rate change. Or any case study that we thought might be useful to share with you so that you can learn from it. Thank you for watching. I will see you next time. Bye-bye!.