Simon, et al: Do the math, I did some rough calcs based on $100k, 5 years fixed at 8% v floating at 5.99%....assuming the floating stays at 6% for 5 years then you pay over $7k extra....next I assumed a 0.5% annual increase (0.25% per 6 months) to 5 years, still $4k better off, I then re-did that at double ie 1% increase per year, worked out <$1k worse off...ie a 1% rise a year for 4 years to 10% would be hefty...so no your average paymant would not necessarily be lower...Also once fixed if you lose your job and have to sell or move you will be stung big time in bank charges, so you lose flexibility for maybe a small saving...

Also consider wage v food inflation, money in your hand today is worth more than it will be in 5 years....so consider over-paying your mortgage, thats $7k off your sum...thats $7k you wont be paying interest on over the remainder of the mortgage, plus its a shorter term......

Finally, inflation is not necessarily going to happen, we might see deflation or stagnation....Japan had a stagnent decade, if we are looking at the same globally thats a Low OCR for many years....

If we believe Bollard then for the next 18 months rates will be around 2.5%. Therefore for 8% fixed now to be a good deal then rates would need to jump to 10.4% for the remaining 36 months. Clearly it will take at least a year for rates to jump from 2.5% to anywhere near 8% yet alone 10.4%. It is silly to assume that fixing now is a good deal. Stay floating or fix for 6 months and with the monthly savings put some away for a rainy day or invest or pay down other bad debt. My view is that the recession is about to bite NZ so rates will be quite low relative to 10% range for a number of years. Hang in and dont panic!

This is crazy talk to stay short. Sure, if you think you will have your loan paid off in 1-2 years then definitely stay short. But for those of us with 15-20 years to go, lock those rates quick as rates are going to take off once the US starts melting and hit rates similar (or higher) than my parents generation did 30 odd years ago.

Irresponsible article and not very well informed.

"The tricky part of borrowing is what strategy to adopt when rates start rising."

START rising? How does that differ from what is taking place at the moment?

Scott sorry to burst your bubble man but NZ banks only borrow 30 - 40% tops from the reserve bank of NZ, which means that they borrow the rest 60 - 70% from offshore lenders to lend to us. Due to the current economic climate including a lot of large banks folding, it has become harder for NZ banks to borrow from them, which obviously directly reflects in the higher rates of interest for lending by NZ banks. You guys are dreaming if you think that the RBNZ can support all of NZ banks lending, especially considering our saving ability!!

Scott funny that isn't it the great kiwi hope has rates just has high as every other bank , I wonder what that thing was made for again considering we had TSB already.

but honestly when will people stop crying about mortgage rates . you dont' wanna bu that much don't.

how many people go to Mcdonalds and say look I know that it only costs you half the price that you charge to sell me that big mac , so how dear you be a business I want my big mac at cost on the double . which is what most of you talk like with the banks .

they are a business , they need to make money. don't like it keep your money in the mattress i'm sure you won't get 3% under there though

>Rates will rise and they could rise more quickly than predicted. >When this happens the decisions will be tougher to make.

And of course by then even 8% as a long term rate could look like a bargain... that is no longer available.

Everything short is taking a BIG risk!

Simon, banks don't know what interest rates will be in 30 months time. They try to predict what markets will do but they don't know any more than non-bank economists. Banks also, in 30 months time, won't be subsidising borrowers who took out five year 8% loans back in 2009. Banks do not want to, nor do they need to take risks like that. If you want to take out a 5 year loan, the bank borrows the money you need from someone else, at a fixed rate for 5 years. Adds 1 to 1.5%, then lends it to you. The bank fixes it's cost with its supplier for 5 years. And you fix your rate with the bank for 5 years. That is also why you pay a penalty if you break your loan contract early. The bank is still committed to its supplier to the end of the 5 year contract. If 5 year fixed loan rates are currently 8%, then the average interest rate the bank will be paying its suppler will be around 6.5 - 7%.

Scott, It would cost too much in overheads for the Reserve Bank to lend it to us directly. They'd have to add 1 - 1.5% to cover the admin cost of dealing with lots of small loans and the risk of bad debts. So it would end up costing exactly the same. Also, the Reserve Bank has nowhere near enough money. Currently, banks get about 40 odd % of the money they need from overseas, and 50% from New Zealand investors. None of that at interest rates controlled by the Reserve Bank. The Reserve Bank would have to borrow from overseas to lend it to us. At a rate they won't be able to control. If the Government is to instruct KiwiBank to drop rates, how will Kiwibank meet the increased demand? They'll need to borrow money from overseas so they have enough to lend to us. In the current climate, all other banks could tell Kiwibank to just go for it. They know Kiwi bank would not be able to take much business off them without making big losses, which would need to be covered by the government, which is us, the tax payer. In fact, perversly, most banks may welcome kiwibank taking some business from them, as the money paid back could be used to repay their most expensive overseas funding, and therefore increasing their profitability in the short term. The only thing countering this is the long term impact of the loss of market share.

FIX LONG! Thats the best option for us all. Historically, rates skyrocket after a low, so fix long to avoid paying 18% like the baby boomers suffered a couple of decades ago.

the reserve bank lends banks money at a certain rate normally bargain basement. they should lend us the money ibnstead of the bank and have the rate slightly higher than what they lend to the banks and make more money for nz, save us money at the same time and kicking those aussie banks out the door. the government own kiwibank so they should be pressuring them to cut rates the other banks will soon follow just like petrol companies