As we navigate the ever-changing landscape of mortgage interest rates in August 2024, many homeowners are left wondering: What should I do with my interest rate fixed period? With recent drops in the Official Cash Rate (OCR) and subsequent rate adjustments by banks, it can be challenging to determine the best course of action. This guide aims to break down the key considerations you should keep in mind when deciding how to fix your mortgage rate in the current market.
Understanding the Current Rate Environment
In the past few weeks, we've seen the Reserve Bank drop the OCR, prompting banks to lower their interest rates. This shift has introduced more competition among lenders, leading to a variety of options for borrowers. However, with so many choices, it can be overwhelming to figure out which rate and term length are best suited for your situation.
As of August 2024, the rates available are:
6-month rate: Approximately 6.85%
1-year rate: Around 6.55% to 6.59%
18 - 24 month rate: Around 5.99% to 6.15%
3-year rate: Approximately 5.99%
4- and 5-year rates: Slightly below 5.99%
These rates reflect a market that is slowly responding to the OCR drop but isn't yet moving rapidly. The key question for many borrowers is whether to lock in a shorter-term rate, like 6 or 12 months, or to go for a longer-term fix, potentially at a slightly lower rate.
Key Factors to Consider
When deciding how to fix your mortgage rate, several personal and financial factors come into play. Here are some of the most important considerations:
Your Financial Goals
Start by reflecting on your financial goals for the next 6 to 24 months. Are you aiming to pay off your loan faster, or are you more focused on keeping your repayments as low as possible? If you're planning any significant life changes, such as starting a family, changing jobs, or making large purchases, these factors will influence your decision.
Cash Flow Considerations
Your cash flow is a critical aspect to consider when choosing a fixed rate. Can you comfortably afford the slightly higher repayments associated with a shorter-term rate, knowing that rates might drop in the near future? Or would you prefer the stability of a slightly lower rate over a longer period, even if it means paying a little more towards the end of the term?
Rate Predictions
According to current predictions, interest rates are expected to gradually decrease over the next 12 to 18 months. While it's unlikely that we'll see the ultra-low rates of 2020 and 2021 again, there is a strong possibility that rates will fall to the late 4% or early 5% range within the next year or so. This potential decrease suggests that fixing for a shorter period, such as 6 or 12 months, could be a strategic move, allowing you to take advantage of lower rates when they become available.
Certainty vs. Flexibility
Consider how much certainty you need in your financial planning. Do you prefer the security of knowing your rate won't change for a longer period, or are you comfortable with the potential fluctuations that come with shorter-term rates? If you value stability and predictability, a 12-month fix might be more suitable. On the other hand, if you're actively managing your finances and can handle some variability, a 6-month fix could offer more flexibility.
What to Expect in the Next 6 to 12 Months
As the market slowly adjusts to the recent OCR drop, rates are expected to continue their gradual decline. However, this process is unlikely to be rapid. The Reserve Bank is taking a cautious approach to ensure that inflation remains under control, which means that rate reductions will probably be slow and steady rather than dramatic.
Given this outlook, fixing your mortgage rate for 6 or 12 months offers a balanced approach. A 6-month fix allows you to stay agile and potentially refinance at a lower rate early next year, while a 12-month fix provides a bit more stability without locking you into a higher rate for too long.
Seeking Personalised Advice
Ultimately, the decision on how to fix your mortgage rate should be based on your unique financial situation and goals. With so many variables at play, it's essential to get advice tailored to your needs. At My Mortgage, we specialise in helping homeowners navigate these decisions, ensuring that your mortgage is structured to support your long-term financial success.
If you're unsure about which rate or term to choose, or if you want to discuss your options in more detail, we encourage you to reach out. Our team of experienced advisors is here to help you make the best decision for your situation. Visit mymortgage.co.nz to book a call or contact us directly to start the conversation.
Fixing your mortgage rate in August 2024 requires careful consideration of your financial goals, cash flow, and the current market environment. By taking the time to assess these factors and seeking professional advice, you can make an informed decision that positions you for success in the coming months. Whether you choose a 6-month, 12-month, or longer-term fix, the key is to ensure that your mortgage strategy aligns with your overall financial objectives.
For more information and personalised advice get in touch with one of our advisors today.