The first of the floating rate rises are now coming through.
Both ANZ and ASB have added 25 basis points to their floating home loan rates and all other lenders are expected to follow either later today or next week.
At the same time - in fact on the same day yesterday - we saw wholesale swap rate falls and credit spreads shrink.
While an overnight rise in benchmark bond yields might temper wholesale rate changes today, it is clear that the drivers for fixed mortgage rates are not pushing them higher.
In fact, as the table below clearly shows, a clear separation between floating and fixed has developed.
When short term rates are lower than longer term rates, it is known as an inversion.
And that is what we will have when the latest round of floating rate increases flow through the home loan market.
Three year fixed rates will be lower than floating rates. In fact, it is possible that four - and in some cases even five year rates may be offered at lower rates than floating in the coming months.
The rush to fix has been dramatic, as we have reported previously. But it will likely only gather more momentum.
Not every borrower can switch out of a floating rate, however.
Those on a revolving credit plan are stuck with the variable rate.
And SMEs using real estate as the basis of their working capital credit lines may also be wedded to variable rates (although it depends on your loan specifics).
If you take the RBNZ at its word, the current pause will only last until later in 2014 and the OCR march higher to its 'neutral' level will continue - over 2015 that may involve another 1% of rises.
The case for fixing some or all of your home loan, and fixing now, is strong.
Here are some current mortgage rates as at 7:00 am on Friday, July 25, 2014:
| below 80% LVR | Floating | 1 yr | 18 mths | 2 yrs | 3 yrs | 5 yrs |
 |
6.74%* | 6.05% | 6.25% | 6.09% | 6.65% | 7.15% |
 |
6.75%* | 5.95% | 6.30% | 6.40% | 6.65% | 6.99% |
 |
6.49% | 5.99% | 6.25% | 6.39% | 6.25% | 6.99% |
| Kiwibank | 6.40% | 5.99% | 6.29% | 6.29% | 6.95% | |
 |
6.24% | 5.95% | 6.30% | 6.39% | 6.65% | 6.99% |
| Co-op Bank | 6.45% | 6.00% | 6.00% | 6.00% | 6.25% | 6.89% |
 |
6.59% | 5.85% | 5.85% | 5.85% | 6.99% | |
 |
6.30% | 5.85% | 5.99% | 6.20% | 5.95% | 6.79% |
| TSB Bank | 6.49% | 6.00% | 6.05% | 5.80% | 6.60% | 7.00% |
* = new rates after Thursday's RBNZ OCR rate hike.
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Fixed mortgage rates
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4 Comments
When short term rates are lower than longer term rates, it is known as an inversion.
Ah so now we know what the Interest.co.nz headline .... "RBNZ hikes , but signals pause" actually means .
Everyone will rush to fix their debt costs , and the RBNZ will be neutralised
Wheeler risks dropping his only monetary policy tool into the ocean if he does this again , Kiwi's will fix on low rates , and and hikes will have no effect at all
"When short term rates are lower than longer term rates, it is known as an inversion."
Isn't it the other way around? Normally you pay higher rates to fix for longer.
Inversion is when short terms rates are higher than longer term rates.
https://en.wikipedia.org/wiki/Yield_curve#Inverted_yield_curve
If you're paying more than 5% you're being ripped off. http://www.smh.com.au/money/borrowing/mix-of-fixed-and-variable-rates-the-wisest-course-20140725-zwj7x.html
Floating is more expensive in Australia as well.
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