Will there be an interest rate war and how far will the interest rates drop? Today the Co-operative Bank have issued the challenge with their offer of 2.09% 1-year fixed term for First Home Buyers borrowing over $200,000. This is fantastic for First Home Buyers with more than 20% equity, and is also available for Kainga Ora First Home Loans.
For the last month Heartland bank have had a 1-year fixed rate of 1.99% and a floating interest rate of 2.5%. Both are unheard of rates. For the last 6 months or so there has been talk by respected economists that the interest rates are likely to drop to around 1.75%.
The new year has started and there seems to be a different mood to the one we were seeing before Christmas. The main economic indicators are showing that our economy is faring better than expected, so the chances of the OCR dropping to the negatives does not look likely in the near future.
This indicates that the interest rates are likely to settle around that 2% – well that is my best guess as I look through the crystal ball! The 5-year interest rates for the main banks are still 2.99%. You would need to be very certain of your plans for the next 5 years (and what you are intending to do with the associated property) before locking in for that sort of term.
Looking closely at your situation and being aware of your cashflow and plans while also making the most of the low rates is key for now. The thing to keep in the back of your mind is that a very low interest rates cycle is followed by high interest rates – a question to consider is what would a 10% interest rate do to your household? That’s why having a really good understanding of your personal finance is always a smart move, keep updating your spending plan and ask us if you need help!