Think interest rates have peaked? Be careful

Think interest rates have peaked? Be careful

One I know a few people who breathed a sigh of relief the last time the Reserve Bank board met and decided not to push the Official Cash Rate (OCR) any higher. The general inference was that interest rates have now peaked.

Well, not so fast.

While the OCR has a big influence on the mortgage rates that banks can offer, it’s not the only factor. There’s also the matter of New Zealanders’ very low savings rates.

Why does this matter? Because it means that New Zealand banks have to fund our demand for mortgages by borrowing from banks overseas.

These banks then place restrictions on the loans to protect their own interests. After all, a country with a savings deficit is bit riskier than one with plenty of spare cash.

One way this shows up is in higher wholesale money market rates. In turn, this recently led to higher-than-expected interest rates on home loans.

So some people who held off fixing have found themselves caught out. They would have been better off taking the fixed rate on offer instead of holding out with the belief that they could grab a lower rate in the near future.

This is just one reason it’s a fool’s game to try and second-guess interest rates. The things you read about in the media, such as OCR decisions, are never the full story.

What type of loan you have, the bank you’re with, the way you structure your loans – all these factors need to be considered in the context of your personal financial position.

Don’t be mesmerised by the OCR. Ask us to help you work out the best option for you.