Earlier today the Reserve Bank announced they have cut the OCR by 0.25%, lowering it to 5.25% - the first cut in 4.5 years.  With inflation now sitting within the target band of 1 – 3% the Reserve Bank felt confident that market conditions were consistent with low and stable inflation.  The pace of further easing will depend on the confidence that inflation will remain around the 2% target

This decision was obviously expected with some banks (ASB and Kiwibank) being quick off the mark with immediate announcements they were lowering their advertised interest rates. The lowering of interest rates will come as a welcome relief to those coming off their fixed interest rates – however it should be noted that as this cut was expected, the banks were already offering discounted interest rates when pushed.

So, what does this mean to you?  How long should you fix your home loan?  With the prediction that short term rates will start to tumble further in the short term - the recommendation from economists and other market experts are to fix short term – e.g. 6 - 12months. While the fixed 6-month rate is the highest of the fixed rates, the expectation seems to be that in 6 months’ time the rates will continue to fall. Fixing 12 months may offer less hassle and a lower interest rate currently and in a year’s time it could align with rates being significantly lower at that time-   but it may be cheaper to fix at 6 months and then, if need be, fix for another 6 months after that. 

However, nothing beats tailored advice specific to your needs and situation.  Any action must align with your own personal goals and your risk profile – and experts are not always right!  Hence if you are unclear what to do or need some guidance, we recommend that you contact your financial adviser at O’Hagans to discuss the best strategies and the implications of each one. 

This post was written by

Trish Marsden - who has written 6 posts