Navigating Mortgage Rate Shifts: Strategic Fixed-Term Choices

There has been a bit of a sea change with mortgage rate expectations in the last week with the Reserve Bank indicating they are prepared to make the Official Cash Rate negative which in turn has led to increased expectations of future rate cuts.

Wholesale rates have decreased slightly and may reduce further which means banks would be working with improved margins, which of course means there is more room for them to compete on price.

TSB have made the first move this week, taking interest rates to 2.49% for 1 year fixed, and we have found other banks have slowly started to match but in one case our request for this rate was declined 3 times before we got it late on a Friday. Couldn't we just have avoided the whole dance, saved our time and agreed on the rate that we knew they could offer!!

If you are trying to weigh up the 1 year at 2.49% versus 2 year fixed at 2.65% it is important to consider that on the 1 year you get to refix in 10-12 months time. To have lost out on the 1 year fixed, rates in a year would have to be above 2.81% for you to have lost out which doesn't seem likely right now.

We like the idea of spreading debt onto different fixed terms so that you avoid having your debt all come up for negotiation at an unlucky time. However when we have a conviction view we are not shy to share it. Now seems to be one of those times.