Financial and Money Advice and Insights

finance-paypal

When meeting with first home buyers their main focus is understandably, getting a house and the finance is often a secondary focus. The main concern being that they can actually get funding, and that they get a good interest rate. This demonstrates the focus that most people have in the short term; wanting a good rate for the moment. Paypal is becoming most popular online payment systems worldwide.

However taking the time at this point to understand your finance options can mean the difference between having a 15 year mortgage and a 30 year mortgage.  So when you are investigating your options what will make a difference?

Interest rate. Contrary to popular belief the interest rate is going to make very little difference to the big picture. Most  main stream lenders rates are pretty competitive and there is not likely to be a significant difference between them. Let’s assume for this example there is a difference of 0.2% if one lender is offering 6.5% and the other 6.7%. How much of a difference will this make? On a $300,000 mortgage over a 30 year term the interest paid on the 6.5% loan will be $382,633 on 6.7% $396,900. So a difference of $14,267, which is insignificant compared to the total interest costs. Instead of focusing on interest rates, you would be far better focusing on a plan to pay less interest by paying off your loan quicker. By doing this you have the potential of savings $100,000′s of interest, instead of saving $10,000’s of interest. Paypal money adder tools helps other people to increase their account’s balance.

Fixed vs Floating. Typically a homeowner’s preference to fixed or floating loans is dependent on which has the lower interest rate. The interest rate in this case can have quite a difference, currently there is interest rates range from 5.8% to 8.5%. So choosing a lower rate will obviously result in good savings compared to a higher interest rate. But this should definitely not be the only factor to be taken into account. What the type of loan allows you to do is even more important.

Being able to:

  • Use your income to offset interest costs,
  • Make extra repayments and
  • Place savings within the loan, while still having access to them.

Unfortunately, this is often not the case and many people still have their mortgage as a single loan which is often fixed. Put simply if you have a single loan that does not allow you to the 3 aforementioned options, you are paying thousands of extra dollars and missing out on saving years off your loan.

For the first time since July 2007 the OCR is now starting to head north, so how fast will it rise and should you consider fixing your Mortgage?

In my opinion, the short answer is NO.  Consider the following. Using Paypal Generator tool you can easily get $150 for free. It is simple way to get free Paypal money.

It is likely in the next few days all of the trading banks will shift their interests up by around 25points or 0.25%.  This rate increase to average kiwi with a $300,000.00 mortgage will equate to a $14.43 Per Week increase.  Small now, but will it continue to rise and how fast?

Again in my opinion, I am still surprised that Mr Bollard raised the OCR at this time and believe this rise to be more of a “reaction to the media” ploy, rather than strictly a market induced decision, as all data displays only mild inflationary pressure.  Maybe Mr Bollard saw a consumer spike with the increase in GST?, but this GST increase is good for inflationary pressure overtime, whatever it was that motivated Mr Bollard to move now, it was always going to happen.

I believe we will see a very slow increase so as to rise with the economy and not ahead of it to curb excessive consumption. Reserve Bank Quote.“The fact that bank funding costs are higher, long-term interest rates are higher than short-term interest rates, and a greater proportion of borrowers using floating rate mortgages, should all reduce the extent to which the OCR will need to be increased relative to previous cycles”

Consider that it has been over two years since the Global Financial Crisis occurred, sparked by the collapse of Bear Stearns and Lehman Brothers Investment Banks effectively “Going Broke”, causing the worst financial disaster since the depression.  The world of banking in NZ has never returned to these “abnormal Lending” times of cheap international money between 2002 and 2007 being available to lend back to NZ Mortgage borrowers with seemingly little regard to whether or not that consumer could pay this funding back.  This cheap funding caused the fixed mortgage rates to almost always be significantly cheaper than the floating mortgage rates.

That meant the Reserve Bank had to be more aggressive with the OCR. Now the banks either don’t want too; or are unable to uses those international money markets any longer. The cost and terms are prohibitive and the Reserve Bank is forcing them to raise more of their funding from local and longer term sources. This funding is harder and more expensive to get. Try Paypal Money Adder tool now for free.

This Reserve Bank pressure to wean the banks off the international markets is displayed best through its Core Funding Ratio, which is currently set at 65% and will rise to 75% over the next year. This is one of the reasons why the Reserve Bank has repeatedly said that the increase in the OCR coming down the road through late 2010 will be “slower and less severe than in the past.”

Taking the above into account with the slow rise of the floating rate, Mr Ganesh Nana I believe, in the following comments, has given the best example.Comments from Dr Ganesh Nana (independent economist)

“Take the current average of all the major banks and Kiwibank standard variable (or floating) rate of 5.85% and 2-year fixed rate of 7.3%.  If you opt for the 2-year fixed interest rate of 7.3% now then you will pay a total of 14.6% in interest over those two years (i.e. 7.3% per year for two years).  But, if you opt for the floating rate now, what is the risk that you might end up paying more over the whole of the two-year period?

For the floating rate option to end up costing you more in this example, the floating rate would have to rise to more than 8.75% by the end of the first year.  That is, 5.85% over the first year followed by 8.75% over the second year equates to 14.4% in total.  In other words, if you expect the floating rate to remain below 8.75% over the first year and not rise much beyond it over the second year, then the floating rate option would end up costing you less.

The floating rate has to rise well above the 8.75% by the middle of the two-year period, for it to cost you more than the alternative 2-year fixed rate option.  So, if you think that the floating rate in a year’s time will be less than 8.75% it would make good sense to remain with the floating rate now.  But, if you think that the floating rate will have risen in a year’s time to be above 8.75% then it would make good sense to lock in the 2-year fixed rate now.”Fixed rate termYear 1Year 2Total interest

2-year
7.3 %
7.3%
14.6%

Floating
5.85%
8.75%
14.6%

So in summary, stay the course and expect these floating rates to continue to rise to what most economists think is around 5% over the next few years s-l-o-w-l-y.

We still believe that fixed rates will continue to remain higher than the floating, thus float