If you are about to take on a mortgage in order to buy a house, or you already have a mortgage and you are wondering about refinancing, then now is a good time to have a careful look at your options in the mortgage market. Should you go Fixed or Floating? We overview the issues to consider.
When you sign up for a mortgage, you will find that you will have a choice of two interest options – taking a “fixed” rate, or a “floating” interest rate. A fixed rate is set at a certain rate, say 9%, and remains at this rate for the length of the contract – most commonly from between 6 months to 5 years. By contrast, a floating rate (sometimes known as a “variable” rate) changes over time – it may go up or down, depending upon what is happening to interest rates in the wider financial markets.
So which rate is best? This will largely depend upon your personal (including family) circumstances, as well as the state of the economy. However, here are some general rules to consider:
- If interest rates are predicted to rise, then you would be best to fix your rate, to protect yourself.
- If interest rates are predicted to fall, then you would be best to choose a floating rate, so that it can reduce over time and save you money.
- If you are on a tight budget or have a large mortgage, it would be better to choose a fixed rate, so that you can be certain of your monthly outgoings.
- If you are a person who worries or feels anxious about your finances, then a fixed rate should make you feel more secure and better able to sleep at night.
So how do you know if rates are going to go up and or down?
There are a number of ways that you can find out this vital information: you can read newspapers, or listen to news reports on the economy and financial markets, you can ask at your bank, or you can check mortgage rates yourself and easily identify which way they are trending.
Some great places to check current mortgage interest rates include www.interest.co.nz, or www.ecompare.co.nz. Most NZ mortgage brokers will also have a home loans rate comparison chart on their websites. You can quickly identify which way mortgage rates are moving by comparing interest rates for each time period from 6 months out to 5 years.
If you’re still unsure about which option to choose and would like to hedge your bets about what to do, you can always indulge in a bit of fence-sitting by splitting your mortgage into a floating portion and a fixed rate portion – most banks are more than happy to do this.