“The Horse Got Away” on Interest Rate Deals

The “horse ran away” and the ability to dodge future interest rate hikes by repairing your mortgage has passed, said ANZ chief economist Sharon Zollner.

Fixed mortgage interest rates rose 20 to 28 basis points over the past month, depending on the term, according to his bank’s analysis.

Data from the Reserve Bank shows that the average one-year standard rate offered to new borrowers was 3.82% in October, down from 3.74% in June.

Zollner said the hikes were part of a series that came in the wake of a sharp hike in wholesale interest rates, driven by expectations of imminent hikes in the official treasury rate (OCR).

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“This anticipation effect means that fixed mortgage rates are unlikely to rise as quickly as OCR in the future, but they should continue to rise slightly. Fixing now may reduce the impact in the short term, but with longer term fixed rates already significantly higher, there is no “quick fix” available.

“The choices now seem to be to either pay more now to fix longer, which is more certain, or pay less now and fix for less time, but recognize that it will likely cost more later. “

The bank’s analysis showed that for a two-year rate to be now a cheaper option than two one-year fixed terms, back to back, the one-year rate would have to drop from 2.79% to 3.58% over the next 12 years. month.

Sharon Zollner says there is no longer a fixed rate option that will definitely save you money.

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Sharon Zollner says there is no longer a fixed rate option that will definitely save you money.

“While our forecast indicates that OCR will increase more than that over the next year – we expect it to increase by 1.25 percentage points – the one-year mortgage rate has already increased by 0, 60 percentage point since June. We don’t expect Delta to derail upcoming OCR hikes again, but there is a small risk that they will.

“There is still a long way to go before the Reserve Bank is able to meet the amount of price increases in the markets, and when the question of the solution for the shortest or the longest is so finely balanced and the rates mortgage rates already higher, this skews us slightly in favor of the shorter one. But there’s not much there, and some people may place a higher value on certainty. “

She said it would depend on individual circumstances and what was important to people.

“Today, from a cost standpoint alone, there isn’t a single rate that’s obviously a better bet than the others. It probably depends on how much importance you, as an individual borrower, on certainty and flexibility, on being close to your pain threshold with your repayments, if you expect to receive lump sums – all of these. kinds of things are different for each person.

She said a few months ago that it was clear that there was inflationary pressure and that the market had not fully integrated this, creating an opportunity for borrowers.

“We thought the Reserve Bank would take action – it happened faster than we thought. But now the market has fully integrated it and in fact compared to our [OCR] forecast, too expensive. It’s a much more nuanced situation.


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