| Sale in Qatar | Property Hunter |
In the next few years, mortgage borrowers should be prepared for a much higher interest rate.
There are now record low interest rates and economists predict that further interest rates will not fall. In the February quarterly economic forecast of ASB the banking forecast interest rates begin to rise in August 2022.
After the government's housing advertisement, ASB economist Chris Tenden-Brown confirmed the decrease in wholesale interest rates. There are several moving parts, but borrowers should be prepared for higher rates as the economy improves and the recovery continues.
"Even as the housing industry improves, we expect that people will factor interest rates marginally higher than what they are currently paying," says Tenden-Brown.
"The rate is tiny, it can change somewhat, but in the long term, since emergency interest rate settings are less important, the Reserve Bank is right to plan to remove the settings."
The rise in interest rates would depend on a variety of factors, but under the right circumstances, Tenden-Brown states that mortgage rates will increase from one quarter to half a per cent in the next few years.
"Our basic view is that in the next two or three years the rate will be higher, which is expected to begin with long-term rates," Tenen-Brown said.
Squirrel's mortgage broker figures show that a fixed rate of 2-years of 2.59 percent over 25 years of $500,000 will cost a surcharge of $42 per week in capital and interest ($181 per month).
Squirrel's CEO, John Bolton, says that fixed long-term mortgage rates have increased. Borrowers with mortgage rates that are now phased out and concerned about future rate rises might envisage a longer-term deal.
"If for some reason you currently have little surplus revenue, I'll take the occasion to set some fixed long-term rates now," said Bolton.
Creditors should continue to stay for a time at a fixed rate of approximately 2.29 percent.
"If you can keep your mortgage comfortably, you can continue to benefit from very low rates," added Bolton.
Current figures show that Kiwis borrowed a whopping $7.6 billion, up 36.2 per cent year-on-year in February.
Borrowers with fixed interest rates are advised to prepare for extra expense before their loan is over, given that mortgage rates are set to rise over the medium term.