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Fixed Rate Reviews

New Zealand home owners like fixed interest rates.

Most of our home loan debt is based on fixed interest rate products.  However, there are pros and cons to entering a fixed interest rate contract and it pays to know the benefits and the risks before you sign up.

 

Fixed interest rates explained

A fixed interest rate is guaranteed not to change during it's fixed rate term.  As the name suggests, the interest rate is set (fixed) for an agreed period of time and it will not go up or down during the term of the contract.

Fixed interest rate terms typically range from 6 months to 5 years.  Lenders sometimes offer split-year fixed interest rates for terms, like 18 or 30 months and these are often promotional interest rates.

Fixed interest rate loans are generally less flexible, in terms of repayment options, than variable or floating interest rate loans. 

 

Sometimes a little bit of knowledge is unhelpful

By this we mean that, although you might understand fixed interest rate products, you may not be as informed about the underlying interest rate market. 

Nobody can predict interest rate rises and falls with absolute certainty all the time - and we are no exception.  However, we do read a lot of economic commentary and interest rate related materials and we are involved in the market daily as part of our job. 

 

It can be tempting to fix at the top of the market

This can be very costly.

Fixing at the top of a market happens often, perhaps because borrowers have a lower tolerance to cope with an increase in interest rates at the height of a cycle so they fix to insure themselves against this risk.  It could also be because bank staff encourage borrowers to do this because;

  • it saves them from having to make an informed judgment based on the borrowers circumstances, and/or
  • they lock the client in to the bank's products for another fixed term, whereas borrowers are relatively free to move if they use variable interest rate loans.

 

It just pays to get independent expert advice

Maybe your circumstances won't accommodate even a small increase in interest rates.  This is a very valid reason for considering fixed interest rate products - but which one or combination of rates? 

Maybe you've already repaid a lot off your home loan but are planning to stop work for a while.  

Maybe you've always just taken the cheapest rate but keep getting caught with penalties whenever you want to change something about your loan.  

We won't know what is best for you until we discuss your situation, but we do know what's on offer and we have a fair idea where the market is heading from day to day.  

 

Fixed interest rate reviews are just part of what we do

Managing your fixed rate loans requires analysis and market knowledge and this is where we can help you. 

If you'd like us to help with your next fixed rate review, get in touch and we'll be glad to help.