To understand the concept of Paypal systems you must take where the market is at any given time and effectively crystal ball gaze!
It’s not quite that abstract or dramatic, however. You are just trying to beat the market, and to beat a market requires insider knowledge and an element of risk. There are 2 important factors to consider:
Firstly, as I have highlighted in previous articles (please note my earlier 5 part series), neither you nor I can control or affect interest rates alone, however we can affect our structure, which in turn improves our result. On most occasions, clients are surprised when I do detailed analysis how little affect interest rate has! Paypal is a leader of online money transfering systems.
Secondly, over long periods of time we must use averages and basically the average interest rate in NZ over the past 15 years is around 8%, so this takes into account the fluctuation, over the prolonged period of time of a Mortgage.However, all of this aside, what is the best bet in my opinion in the next short while?
Assuming that you have set up your structure correctly and you have no short term plans that would involve selling your house or having to relocate. I would still recommend floating for the following reasons.
There has been a change in banking governance in NZ very recently, 1 April 2010, which has largely gone unnoticed to the NZ public yet its implications to debt laden, mortgage burdened NZ will be significant. Basically banks operating in NZ must capitalise to 75% of their loan book in the next 12 months. (Please see attached link for the full 22 page document*) so plainly put in English; 75% of the money they lend MUST come from effectively cash deposits from New Zealander’s. Whereas historically (pre 2008) the banks have effectively been trading at around 65% (See attached link for quote from RBNZ**. Note the date almost 12months ago.) And last time we checked NZ’rs were still spending money NOT saving! Further to this, KIWISAVER is not largely included in this capitalisation or “Tightening of Banks Liquidity Guidelines”. This means that Banks must offer attractive rates for the NZ’r to deposit their savings with them. So we are in a very odd market place. Consider this:
1) Interest rates for lending and the banks swap rate (OCR) is the lowest it has been in NZ history to promote fiscal growth, and is set about perfect… WELL DONE Mr Bollard! And as we predicted around 12 months ago, we don’t see this rate increasing pre (probably) September, but even then all indications are it will start a slow rise, and let’s face it, this will be to counteract the inflationary pressure of financial growth so, great news capital gain is back (???)
2) Banks can’t go overseas for their cheap funds to lend like they did pre the recession, not only because it’s not as easy to get but also because there governance has changed. So they seek to self fund, so how?
3) You can get great returns on your term deposits at the moment all you have to do is look at the television, all the Major Trading Banks are advertising their great deposit rates, have you taken the time to consider how they are funding these great deposit rates? You guessed it, by on charging the Mortgage borrowers.
In simple language the fixed rates fund the capital the banks need to lend YOU their money. Thus why the fixed rates are inflated above where they should be in this type of market. Basically put, the fixed rates are high to give banks the ability to lend, so OF COURSE the Banks are going to recommend you fix now!
So in my opinion, get your loan structure into line with your lifestyle, make a plan, and then ride the floating low interest rates. But for how long you ask? Until your next mortgage review of course! If that next mortgage review is only once every fixed term, or never, then I suggest you review your provider and advisor.