Mortgage lenders have continued to fiddle with their fixed rates over the last few weeks, with three and five year rates common targets. Five year rates are now as high as 8.30%, with three years up to 7.75% and even the one year rates tipping 6.50%; and all that's making floating rate mortgages, at 5.95% to 6.50%, look increasingly attractive (See our rates table for details).
However, Sovereign Marketing Manager Andrew Strother says there's no reason for "out and out panic" over the ongoing rate moves. He says we're seeing a readjustment in line with moves in the currency and wholesale bond rates, but still expects things to remain pretty stable over the next 12 to 18 months.
Martin Shepherd, sales manager for mortgage brokers Loan Plan, says the changing yield curve (the rise in long term interest rates) has prompted some mortgage lenders to run 'loss leaders'. He says they're making their six months and one year loans particularly attractive: what they lose out in rates, they hope to make up by selling higher numbers of those loans.
Shepherd is a fan of the floating rate at the moment, saying there are unlikely to be any significant moves now the OCR (Official Cash Rate) is in place. He says if you take on a floating rate loan and subsequently want to fix part or all of that, it can be done at any time for around $250.
He wouldn't recommend that people break a fixed rate loan either.
"You're taking a gamble. There are a lot of people that fixed over 9 per cent, but if you're locking in again for another three year period, how confident are you that you'll make up the break costs (of the loan)?"
As for locking in for as long as five years, "I don't really consider that to be an option. Maybe it's useful for hard core investors needing that stability."
Andrew Strother agrees, saying that the likes of five year rates are generally offered for product flexibility and for the few people who need that longer term certainty.
"When people lock themselves in for those longer periods, they don't always understand the implications (if they want to sell the house or refinance) and they're not totally aware of the impact of the break costs."
Strother says the most popular fixed rates at the moment are the one and two years - "people aren't necessarily going for threes and fives."
"The message that the vast majority of our distributors use is one of debt reduction: have a portion on floating, which you reduce as quickly as possible, and some on fixed for certainty."
