Interest rates up or down?

Prateek Malhotra
Everest Financial Services
With the recent announcement of the OCR being cut to 1.75%, there has been lot of speculation as to what the home loan interest rates would do. Previously, when there has been an OCR cut, the interest rates have fallen and the floating rate has been dropped to match the OCR cut.

Not this time though. On the contrary, we have seen some upward movement in the interest rates with some banks increasing their rates for terms of 3 years and more. This is mainly due to rising borrowing costs for the banks, which is being passed on to the consumers. Chances are that these borrowing costs could rise if the overseas markets - especially the US market - starts to go into inflationary mode. This will make it more expensive for our banks to borrow offshore and hence more expensive for home loan borrowers here.

The other reason is that we do not have enough deposits being made into our banks, as the rate of return is comparatively low. To counter that banks will push for higher deposit rates, and to offset this increase will have to increase our home loan rates as well. So, while all of us have gotten used to the rates that were around the 4s or mid 4s, it could be that this is the lowest they will go.

In terms of borrowing strategy, a lot depends on what you intend to do with the property. This will be different for a first home borrower as opposed to an investor. It might not be a bad idea to look at the 3 years and above rates as they are still historically low and could give some comfort if the rates were to start rising.

If you would like to discuss more about the home loan rates or discuss your personal risk insurance, please give us a call on 09 215 6912 or visit www.everesthomeloans.co.nz