Reduced rates ahoy!

One-year fixed rate mortgages are looking like the best option at the moment, according to BNZ Chief Economist Tony Alexander.

Writing in this month's New Zealand Observer, he says the one-year rate will save money in the short term and also give borrowers the chance of locking in a good longer term rate in 12 months' time, caused by potentially lower longer term rates in the US. "This factor will outweigh any domestic tightening of monetary policy predicted by the Reserve Bank for terms of two years and beyond."

His advice comes hard on the heels of a number of rate reductions, including ASB Bank's levelling of all fixed rate loans to 7.95 per cent and a prune by WestpacTrust to 7.9 per cent for one-year fixed and 8.0 per cent for three years. Non-bank mortgage lender Cairns Lockie has also had the shears out with its one, two and three year rates now at 8.05 per cent and Quick Start Loan at 7.75 per cent, while BankDirect is now offering 7.85 per cent for two, three and four-year loans (see our mortgage table for more details).

Looking further out, Alexander notes the RB's forecast of a one per cent rates rise over 2001. However, he says the BNZ's view is that their interpretation of factors influencing inflation is too weighted toward the high inflation scenario, and the outlook for interest rates is less bearish than they state.