Home Interest rate Fears of rising interest rates prompt homeowners to lock in long-term rates

Fears of rising interest rates prompt homeowners to lock in long-term rates

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Fears of rising interest rates have fueled a surge in mortgage borrowers opting for longer-term fixed rates.

ASB said there had been an increase in the number of borrowers opting for fixed terms of three to five years for their home loans and that about a fifth of customers now had at least part of their mortgage at these rates. longer term, double the rate for the year. before.

A spokeswoman for the bank said customers were looking for certainty on future interest payments at a time when the Reserve Bank had reported further increases in the official cash rate (OCR), which would have an effect of training on interest rates.

Currently, the Big Four banks offer one-year rates of around 3.65% and three-year rates of 4.69%. This means that locking in a $ 500,000 loan over 25 years over three years costs about $ 130 more per fortnight on a three-year rate than a one-year option.

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The Kiwis have historically preferred one- or two-year fixed rates, but a monthly survey of mortgage brokers by economist Tony Alexander suggested a drop in interest on shorter-term fixed rates among borrowers.

Independent economist Tony Alexander says homeowners know that interest rates are likely to rise with inflation so high.

RYAN ANDERSON / Tips

Independent economist Tony Alexander says homeowners know that interest rates are likely to rise with inflation so high.

Among the survey questions for brokers was the time frame that most clients preferred.

“There was a big change in July, basically. That’s when things changed almost completely a year [terms]”said Alexandre.

Alexander said that with 4.9% annual inflation, people knew interest rate hikes were coming, so mortgage borrowers were trying to protect themselves.

He predicted that one-year fixed mortgage rates would rise 1-1.5% over the next year and a half.

Alexander survey results show that in November 2020, the number of clients opting for short-term rates peaked, with 97% of advisers saying clients chose one-year fixed term rates or more.

February began a rapid turnaround to the point where, in July of last year, only 5% of advisers said their clients preferred one-year rates. In August, none of the respondents said that a fixed year was their clients’ preference.

Over the same period, the number of advisers reporting clients opting for three-year fixed rates fell from just 5% to 78% in November, before preferences were almost evenly split between periods of two and three years.

Homeowners are increasingly opting for longer term mortgage periods as rate hikes seem more likely.

Ross Giblin / Stuff

Homeowners are increasingly opting for longer term mortgage periods as rate hikes seem more likely.

Alexander said he advised borrowers a year ago to lock in a five-year fixed rate at 2.99%, but very few people have listened.

“I imagine the country is full of people who wish they had set five years at 2.99% now,” he said.

Data from the Reserve Bank also shows that the amount of borrowing at long-term rates has increased. The amount borrowed by homeowners with more than two years to the price review has nearly quadrupled from $ 9.2 billion in November 2020 to over $ 36 billion in November last year.

An ANZ spokeswoman said Things the bank had also seen a continued increase in fixed rate mortgages, with around 90 percent of mortgage balances now being fixed rather than variable.

However, the majority of customers still prefer the bank’s one or two year fixed rate term.

ANZ economists said it was likely that a one-year rate might be the best option. They said interest rate hikes from here would likely be more moderate, and while rates would likely be higher in a year, they might not be high enough to warrant paying extra for a two-year rate now.

ASB economist Chris Tivez-Brown said that assuming his forecast of OCR peaking at 2% was correct, one-year rates would not reach as high as five-year rates. years already were.