Interest rate report #3

Here is your monthly interest rate report.

This gives you a quick, plain English update on interest rates. That way, you can make an informed decision about your mortgage.

How are interest rates changing?

Nothing changed last month. After a lot of frenzied cuts, no bank has changed their advertised rates in the last 3 weeks.

The trajectory is still (slowly) down.

Here’s what the interest rates looked like 6 months ago vs today.

Rates have fallen across the board. They’re all down about 0.25% - 0.3%.

Not mid-blowing cuts. But right now, something is better than nothing.

How much can I negotiate off my interest rate?

This section is now the most popular part of this newsletter.

I show the discounts my team at Opes Mortgages are negotiating. This gives you a sense of the discount you might be able to negotiate.

The biggest discounts are now off the 6-month rate. The average bank is advertising 7.29% for this rate.

But our brokers are getting that down to 6.98% on average.

That 0.33% discount saves $25 a week on a standard $500k mortgage. That’s a $1,300 annual saving.

Here are all the discounts my mortgage brokers are negotiating:

Which interest rates will fall most?

To get a sense of how far interest rates could fall, here’s how they compare to their long-term average –

The average 1-year rate is 7.07%, well above the 10-year average of 4.58%.

Looking at it a different way, the floating and 1-year rates are 2.5% above their 10-year average.

The 5-year rate is only 1.2% above its 10-year average.

That tells me that when interest rates fall, the big drops will be on the short-term rates.

That’s one reason why most people are fixing for the short-term rates.

For the last 2 months I’ve shown this graph from Tony Alexander’s Mortgage Advisers survey. Not much has changed, so I won’t include the graph again.

But, 6 months ago, everyone was going for the 18-month rate. Now, the mood has changed. People expect interest rates to drop, so they now prefer the 1-year rate.

Just remember, the shorter (6-month or 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?

No change here. The servicing test rates haven’t moved at all. Read more about this here.

What to look out for this month

Not much to look out for in June. The Reserve Bank already kept the OCR at 5.5% last month.

But there’s more to come in July. The next OCR announcement is on 10th July.

And the big one, new inflation data, comes out on the 17th July. If inflation falls to 3.6% (or below), that’s a good sign for interest rates.

Talk to you again next month,

Pete