Interest Rate Outlook for September

It’s been difficult obtaining financial data for this month’s newsletter. Perhapsit’s that we’re two weeks out from a General Election and many people areholding their breath awaiting the outcome?

The Official Cash Rate is almost certain not to move when the Reserve Bankmakes their announcement on Thursday. I actually wonder why they’re even makinga statement! Dairy prices are dropping while our exchange rate and house pricesremain high (and are still increasing in relation to the later), which meansthat interest rates could remain stable until March. A reduction in ourexchange rate may force mid to long term fixed rates upwards however.

Fixed vs floating: Floating rates generally work out to be more expensive thanfixing for a short term, such as 6 months of 1 year, although they do allowgreater flexibility to repay them if that is required.Among the standard fixed rates for borrowers with 20% or more equity, the bestrates are for the 2 year fixed rate. These offer substantial value over wherewe expect to see short term rates over the next 2 years. Going for a longerterm such as 3 or 4 years might mean you’re paying a little more initially butcould help to insulate the borrower from projected Reserve Bank OCR hikes in2015.

Each borrower hastheir own goals in relation to a home loan so it's well worth talking to us toestablish what they are, and then we can create a great solution for you.


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