Interest rate report #1

Here is your monthly interest rate report.

This is the first edition of this newsletter. It’s here to give you a quick, plain English update on interest rates.

That way, you can make informed decisions about your mortgage.

How are interest rates changing?

Interest rates fell in March.

All major banks have dropped some of their interest rates since 1^st March. And no banks increased their rates over that period. Here are some of the changes:

• Last Wednesday, Westpac dropped its 2-year rate from 6.89% to 6.75%. This is now the lowest in the market (0.14% drop)
• ASB dropped their 1-year rate twice in March. First, a drop from 7.39% to 7.29%. Then again to 7.24%

When you average it out, all fixed interest rates went down a tad over the last 3 months.

The average 1-year rate has gone from 7.35% in January down to 7.19% today. That’s a 0.16% drop.

These falls are not massive. But this shows that interest rates are now (probably) past their peak.

You can see all the banks' latest interest rates here. You can also see how the banks are changing their interest rates here.

How much can I negotiate off the interest rate?

The banks aren’t dropping their advertised rates much.

But they are discounting their rates when you negotiate.

My team at Opes Mortgages are negotiating large discounts for some borrowers. The biggest discounts are often on the 1-year rate:

Where are interest rates going to go?

Interest rates are hard impossible to forecast. But Ed (our economist) has released his latest predictions.

These give you a sense of how fast interest rates could fall.

Have a read of his interest rate predictions to dive deeper.

How long should I fix for?

I’m still bullish on the short-term rates. I'm not alone.

Most borrowers prefer short-term rates, according to Tony Alexander's mortgage advisers survey:

This is a big change from 6 months ago when the 2-year rate was more popular.

But shorter (1-year) rates aren’t right for everyone. Check out this article by my colleague April to get a sense of how long you should fix for.

Are banks being tougher when looking at my mortgage application?

While the rates you pay are falling, the servicing test rates haven’t moved much yet.

Remember, this is the rate the bank uses to stress test your application when you want to get more lending. They’re still testing you at about 9%.

As interest rates fall, these will likely come down a bit. That will make it a touch easier to get your mortgage application approved.

So watch this space over the next 1 to 2 years.

What to look out for this month

New inflation data comes out next Wednesday (17^th April).

The Reserve Bank predicts CPI inflation will be 3.7%.

If inflation comes in at 3.7 or below, that’s a good sign for interest rates. They might come down a bit quicker.

If inflation comes in above this, that’s bad. Interest rates could stay a bit higher for longer.

Talk to you again next month,

Pete