Hey. What's going on?
Everybody it's Blandon here from mortgagehq.
So you guys have already seen this.
OCR have decided to go up to 1.5% so you probably have these three questions.
How much interest rate gonna continue to rise you
should I break my current interest rate?
That might be slightly lower and then just fix for a longer term.
And if I do re fix my mortgage, what sort of rates should I fix on?
So I'm going to try to attempt and answer some of these for you guys.
But before that, it's
just sort of understanding the background before coming to my conclusion.
So I've just pulled out some of the main headlines.
So the first thing that you want to see is sort of,
you know, some of the economists are saying that
potentially the interest rate is going to continue to rise.
And if you go on interest accrued on Z as well,
I mean you've got ASB thinking is probably closer to ceiling,
but you know, there are different views on that.
And certainly when you watched this video,
ANZ has probably put up their fixed interest rates already and
you know, if you go down to this sort of article,
you have discussions and you're going to see that
a lot of the boomers coming back into these articles
to say, hey, look, you know, back in the days we were paying 10%
and they definitely think it's going to be at least 7%.
So I don't think they're wrong.
And in terms of is this the thing that you should be worried about?
I don't think so, because if you look at the New Zealand
banking system, only one third of the lending is actually domestic.
So a majority of our lending is from overseas.
And what that basically means is when it comes to interest rates,
we are a price taker so the thing that we need to be
watching out for is more to do with what's going on in the world.
And if you just have a quick recap, 20, 20 you've got COVID.
And that was when the money printing started
going really, really quickly because of you remember
the US debt levels starting in 20, 20 was sitting around that 23 trillion mark,
but now we're at 30 trillion plus.
So in just two years we almost have seen a 50% gain in debt.
And what that basically means is when you print more money
it means money is worth less.
So what that basically does to goods and services is that the price will go up.
So how does that sort of relate to interest rate
because, well, you got to think about it like this. When
the government
is trying to control inflation, which is the price of goods and services.
So if prices were to go up, they will
then increase interest rates to try to adjust for that.
Now, the second thing that you have to also remember, we are at war right now.
Russia invades Ukraine and that basically sends
a lot of
countries into
sort of panic in terms of how much petrol and gas is going to be
because this is a major export country for petrol.
So you have already seen this because there are lots of countries
with their gases and petrol.
If you go to a petrol station right now, the the gas prices have gone
up significantly and especially in the US.
So if petrol goes up, that's majority of everything that we do when we do
logistics when you have to import export, when you deliver things, when you
just go to work, it's all related to petrol.
So that's going to spike the living costs and inflation is about to hit
really hard.
Now the other thing that you've got on the upward pressure on interest
rate is the housing market in America.
So this is actual listings that are active in America.
This is really interesting.
You might have thought that maybe listing would be increasing significantly right
now, but what's happened is that there are less and less stock
pushing up the price of
properties.
So if property prices continue to rise, that gives the government
upward pressure to put up the pressure to increase the interest rate.
And why is a supply so low?
Now, there are certain states that are probably more vulnerable
right now, but the reason why is because the basic mechanics of mortgage interest
rate in America is that they usually have
long term interest rate of 30 years.
So there would have been a lot of people who are more experienced in the market,
and they would have came in when when the money printing started.
They know that they have to lock in these lower interest rates
and just borrow as much as possible and lock in these assets that potentially
might be cash flow positive on the 30 year loan,
then on a slightly lower interest rate like 3%.
So in no way
are they going to sell these assets and come out to a 5% interest rate.
So that's why the the stock is so low and the only way it's going to like
this is going to be replaces if they overcommit
and there's a lot of negative cash flow that they're stuck on or
potentially the
they have to continue to build new houses.
So this is another major thing that is going on in America
that's going to put pressure on the high interest rate and
the next thing that we're going to look at is just inflation in general.
So if you just look at the inflation articles, you've got different
countries, UK heading 7% as fuel prices surges.
Honestly, I really think is way high in 7% because I'm going to
but I'm about to show you why you've got things like New Zealand
raises rates by most and 22 years on surging inflation.
You've got Fed official it's
fantasy to think modest rate rises will tame inflation.
So they are trying to hit the brakes really hard.
If you're actually seen an article it's about they're trying to
reduce the balance sheet so they're basically
reducing the money supply and they're looking at rate hike rate
hike going forward So that means they they are making money harder to get
so that people will spend less and they're also
putting up the interest rate so that forces people to spend it.
So, yeah,
you can see there are a lot of indication that interest rate will continue to rise.
The next thing you want to have a look at as the
sort of raw materials, right.
So if in 20, 21 it was the worst because you look at lumber,
copper, steel, scrap diesel fuel.
Like there were a surge of almost 100%.
This is ridiculous.
So if you think inflation is going to stay at
seven 8%, 10% is just very much lagging
because if raw materials can go up 30, 50, 60, 80%
dearer there is a lot more inflation coming.
And if there are a lot more inflation coming, chances are you going to see that
interest rate that's going to continue to rise So this is the worst time in 2021.
But if you just have a quick look at lumber and just the last year
right just from 2020 it was sitting at
close that 1.3
and now it's this is diesel fuel
this is almost double right so it's
essentially 100% inflation.
So I think it's a lot worse to come and then you've got lumber right.
20, 20 are sitting at 400 mark
and now it's gone down quite a bit
because there was a surge over here, but then now
it's still closing at 890. So
if some of these
raw materials are getting like 100% inflation,
I think you're going to see those figures moving up a lot more.
So what should you do?
What time should you go for?
Well, if you look at your mortgage, I think you're going to
figure it out yourself, sort of what you should do
because most people would have I notice the street has got a lot of stuff on it,
but bear with me here.
So most people would have fixed their mortgage on this
two and a half percentage rate, some some even lower two point to 2.3.
So what does that look like on the 800 K mortgage
that is not interest only.
So principal and interest, it's about 3182.
So the rates I show you here are the ANZ rates that they're about
to pull up their fixed special rate is going to be at 4.55%
and you can see just the one year interest rate
will go up to 4000 in repayments
so effectively that's like 12, 12 grand a year.
So it's not as bad as most people think when when you're
on principal and interest.
But in saying that
if you are on interest only, which a lot of people are
in the last two years they have jumped on the property ladder
because almost everything was cash flow positive because if you look at this
two and a half percent if you've got a mortgage,
1700 dollars for the mortgage
so have you got an $800,000 property, you might get at least five, $600.
So that's at least 2000 a month, right?
So that means cash or positive.
But now because interest rate has gone up double,
you're looking at a $3,000 repayments.
So suddenly investments or properties are not so hot anymore.
And of course if you came to mortgage HQ, we always preach on cash flow.
So it's all about the yield and making sure you go
for much higher yield than the standard three bedroom that you know,
the average Joe will go for.
You know, that's not really an investment strategy.
So this is these are the people that I'm worried about
because if you've got a, you know, three, 4%
yielding asset on 100% finance because you bought it on equity,
you really have to think about this because
interest rates, if you've just fixed for one year
very likely that the interest rate and I'm no economist
I don't have a doctorate in an economics
but I think there are a lot of indications
that interest rates are going to continue to rise for a bit more.
There's a bit more room for it to go.
So you might have to cut your losses early and go, hey, you know what?
Because one and two years and three years, there's not that much difference.
But between where you are standing to
the end, to the next interest rate, there's a big gap.
So you might need to think about, okay, medium term, two
or three years, because and really have to stop budgeting because,
yeah, this is this is real stuff.
So this calculator here, I just want to let you guys know what it is.
You guys, if you got an existing mortgage HQ plan, you guys are going to get this
in the email and you guys will be able to use these great sales this
to understand sort of your situation of interest rate, which is a change by 1%.
How is it going to change the repayments?
You can actually compare it like if it changes by 2%, how is it going to change?
So what you need to do is basically get the rates of our team plugged in here
and then you put your loan in here whatever loan term you have remaining
is that interest only now
means your principal interest and then you've got your repayment frequency.
So you get this so that you can do your sort
of planning around actually how much is it going to cost
and what rate should you fix for?
Okay, well here's the thing.
You know, if you go it and go back
to like the foundation of investing because you always want to understand.
Dollar cost averaging is trying to average out your,
you know, when you go into investment, sometimes it's up, sometimes it's down.
But if you are consistent and just a set amount to buy it,
you actually get the best price.
So you can approach the same thing of interest rate and it's called interest
rate averaging, which you can check out on our YouTube channel.
So you can actually just struggle interest rate averaging.
And you'll see Andrew, you'll see a couple more videos that's related to that.
So definitely check it out before you, you know, spend the time with the advisor.
This is going to be really good preparation for you
to maximize the time you can have.
Would your advisor.
But in
saying that if you are owner-occupied,
I think you are okay to go for shorter terms one or two years
because usually in your own occupied
you are, you know, paying it on salary.
And when we stress it
to give you the mortgage, it would have been done on the 6% interest rate.
But if you got interest only on an investment, you're more likely
to try and look at interest rate averaging on the longer terms because
if you bought up hopefully
before March, your tax deductibility then it's
tax deductible is still tax deductible for a couple of years before
I think National is going to want.
So I hope they come back in and the tax will reverse.
But definitely you want to consider the interest rate
averaging and and probably take 23 for something like that.
And if your your your unoccupied
you might look at one to 12 years.
Okay. Now of course,
this is not personal advice, personalized advice.
You really want to probably talk to someone if you want
to understand your situation a little bit better.
And the process is very simple.
Now, if you already have an existing adviser, all you need to do
is click on the phone in image, your doctor owns it
and then just reach out by the email.
You probably have the email as well already in your inbox.
So just send an email, let your adviser know and then our team
will prepare that conversation to have with you.
Right.
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and you just want some advice, you can just reach out
by going to get in touch.
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And then you got you can book a ten minute
introductory phone call and just sort of set up an appointment to talk to somebody.
And that's an easy way to get started.
So that's a that's the best way to do it.
Okay, just go on image.
You don't have runs it and just book in a call or send an email to your advisor.
Now some of you might need a little bit of help on the budgeting side.
Then you want to check out a second company
that help people with managing like more micro-level.
On the budgeting side, making sure that, hey, look, the way you're
budgeting or spreading your spending is a good structure.
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and someone will be in touch.
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