Mortgages - interesting times ahead

Not that long ago you didn’t really think about your mortgage until your fixed term came up for review, then you just fixed it again for another 2-3 years. 

That all started to change in July 2008 when the Reserve Bank lowered the Official Cash Rate (OCR) for the first time in 5 years.

Since then, the OCR has continued to fall until leveling out at the current record low of 2.5%, bringing floating mortgage rates down with it.

With rates now running as low as 5.59%, many homeowners are choosing to float rather than fix.

Indications are the Reserve Bank will start raising the OCR again sometime this year. Exactly when this will happen or by how much is a matter of debate. But what is certain is that any increase in the OCR will also mean a quick increase in floating mortgage rates.

And if floating rates do start to go up by a significant margin, the big question will be, should you change to the security of a fixed term, and if so, for how long? 

Not that interest rates are the only thing that should drive your mortgage decision. Fixed and floating terms each have their advantages and disadvantages. It is also possible to hedge your bets and have your mortgage in both fixed and floating portions. Or even to have fixed terms of different durations (e.g. a mix of short and long-term).

Then of course there’s the question of property prices. Are they going to level out or continue to rise? Or are they over-valued and headed for a fall?

The May budget could also signal changes in property tax, following on from the Tax Working Group report. What will that mean for investment property owners in particular?

Interesting questions. Interesting times.

What are your questions or predictions for mortgages in 2010?