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House hunters - Source: ONE News -
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A mortgage broker says home buyers should avoid high five-year interest rates now that the Reserve Bank has kept the benchmark interest rate unchanged at 2.5%.
However, there now seems to be no doubt that the official cash rate will start rising next year.
Trevarsen and Charmaine Moodley have a mortgage on their home and they can only afford to make the minimum repayments each week.
"I use my entire salary towards my mortgage repayments and part of his, and so we're basically living off his income," says Charmaine.
So they have already starting considering how they will structure their mortgage when it comes off its fixed term next year.
One problem for them is interest rates are likely to go up faster, with the Reserve Bank Governor Alan Bollard signalling on Thursday that the official cash rate is likely to remain at 2.5% only until the middle of next year instead of later in the year as previously promised.
BNZ chief economist Tony Alexander tips a rate rise mid-year.
"We expect the Reserve Bank's likely to start increasing the interest rate in the middle of next year, probably taking it up to about 5.5%, but only by the end of 2011," says Alexander.
But some commentators think Bollard may have to move even sooner.
"If the economy continues to strengthen as Bollard suggested and if the rest of the world continues to get better, then there is a real chance that the official cash rate can come forward, the hike, at least in maybe March, April," says Bernard Hickey of interest.co.nz.
So how do homeowners get the best mortgage deal?
ONE News asked Wellington mortgage broker Kit Jackson and his advice is, if you're fixing, don't go for the high five-year rates.
"There doesn't seem to be any justification in doing that, I believe. The furthest that I would look to go would be two or maybe three years," says Jackson.
And if you're floating, he says use the low rates to pay off more principal before the rates climb.
