Of Interest

The million dollar question that

we are asked at the moment is

“what do you think will happen to the interest rates

this year, how high will they go?”

A lot of people are uncertain about what’s happening with interest rates so they are going on the floating rate to watch and wait. People are doing a mixture of variable and fixed rates and we want to make sure when they look at what’s available they see they get a good rate.

One of the major banks says most people are looking to fix because it is perceived that rates will go up in the middle of the year, however there is still strong demand for the floating rate with 40% of drawdown’s on the floating rate.

Another economist says we are seeing a change in the floating rate now because of weak data and unemployment numbers which suggest the official cash rate, which is at a record low of 2.5%, won’t rise until June. Previously many economists were expecting a rise in March or April. He says if any other banks make movements he expects them to be minor because there has not been much of a change in 90-day bank bill yields and it is more expectations of them changing rather than the immediate cost of borrowing changing.

He believes the option of floating looks best for most people and as we approach the time when floating rates start rising – mid-year – for a while the optimal thing may be to fix one year, as many are still choosing to do at the moment. His advice for borrowers is to budget for about a 3% rise in floating rate borrowing costs between the middle of this year and the end of 2011.

No change from last week with Interest Rates of the week:

6 months  5.69%

12 months  6.15%

18 months  6.60%

24 months  7.20%

36 months  7.79%

48 months  8.49%

60 months  8.60%

ASB however did move down their rates this week, which is a welcome change as they have been leading the charge with rates going up!