fixed or variable in NZ

If I were a borrower what would I do?
The graph just below compares current floating and fixed mortgage rates with where these rates have averaged over the past four years. Unsurprisingly, with monetary policy tight current rates are above average for most terms.

But the first interesting thing to note is that the five and seven year terms are almost exactly at their averages. This means that if you are a cautious type of borrower and simply want to get a reasonable interest rate locked in so you can get on with the rest of your life, fixing for five or seven years is quite attractive at the moment.

But we Kiwis have a natural preference for the shorter terms and the issue really is one of whether current rates in the two and three year area are so high that you don’t want to touch them at all or low enough to choose them as one normally would. We find it easy to decide not to take the one year rate because it is sitting over 1% above its four year average, costs a lot more than any other fixed term, and we don’t believe that fixed rates are going to have a major decline in twelve months time which would justify taking the short term pain for major long-term gain.

More specifically, we don’t think that the likes of the five year fixed rate in a year’s time will be back anywhere near the 6.4% or 6.7% seen in 2003 when there were major concerns about deflation in the United States.

If one fixes in the two or three year area you’ll be paying close to half a percent above the average for the past four years and about 0.3% more than if you fix for one of the longer terms.

However history shows that nice low fixed rates tend to come around every two to three years and it is good to have the opportunity to take advantage of these low rates when they appear.