A heated debate is brewing in the world of home loans, and it's time to dive into the heart of the matter. Should you lock in an 18-month fixed home loan rate, even if it's slightly more expensive than a one-year rate? That's the question on everyone's lips, and it's a tricky one to answer.
Let's start with the facts. BNZ, a major player in the banking scene, has just slashed its 18-month fixed home loan rate to an enticing 4.45%. But here's the catch: ASB, another big player, already offers the same rate. So, what's the deal?
Well, it's a competitive market out there, and banks are pulling out all the stops to attract customers. But here's where it gets controversial: should you jump at this seemingly great deal, or is there a better strategy?
Gareth Kiernan, a respected chief forecaster at Infometrics, suggests that it might be worth considering. He believes that you could potentially refix in 18 months at a reasonable rate, giving you some peace of mind. But he also has an alternative plan: take the slightly higher one-year rate and then fix for two years later, just before rates are expected to rise again.
Kiernan's modelling indicates that this strategy could offer a slightly lower average rate over three years. It's a fine line, and one that could save or cost you a small amount. But it's a risk either way.
Rates have been on a rollercoaster, dropping from a peak of over 7%. So, it's understandable that borrowers are eager to lock in a good deal. For example, someone with a $1 million mortgage could have seen their weekly payments drop significantly, from a hefty $1500 to a more manageable $1162.
But here's the part most people miss: it's not just about the rate. Commentators emphasize the importance of finding a rate that fits your unique circumstances and budget. It's a personalized decision, and one that requires careful consideration.
According to Kiernan's calculations, fixing for five years at 4.99% is only slightly more expensive than the alternative of fixing for one year and then two two-year periods. So, the stability and certainty offered by the five-year fix come at a minimal cost.
However, even experts like Kiernan can get it wrong sometimes. He admits that his worst call was fixing for three years at 6.2% in early 2015. It's a reminder that forecasting is an art, not a science, and that sometimes you have to take the good with the bad.
Brokers shed some light on the situation, suggesting that banks are competing with cash incentives rather than solely focusing on rate wars. It's a complex game, and one that requires a strategic approach.
So, the question remains: should you take the 18-month home loan rate? It's a decision that requires careful thought and an understanding of your financial goals. The answer might just be a personal one, and we'd love to hear your thoughts in the comments. Are you a risk-taker, or do you prefer a more conservative approach? Let's discuss!
