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Interest Rate Outlook for September

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

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

Fixed vs floating: Floating rates generally work out to be more expensive than fixing for a short term, such as 6 months of 1 year, although they do allow greater flexibility to repay them if that is required. Among the standard fixed rates for borrowers with 20% or more equity, the best rates are for the 2 year fixed rate. These offer substantial value over where we expect to see short term rates over the next 2 years. Going for a longer term such as 3 or 4 years might mean you’re paying a little more initially but could help to insulate the borrower from projected Reserve Bank OCR hikes in 2015.

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