What to do before the OCR drops

Banker working out rates

With the OCR widely tipped to drop by 0.25% on the 11th of August - following the latest round of RBNZ policy changes - those of you in the middle of property transactions need to be aware of the potential impact.

If you have an existing fixed home loan and are competing any transaction that will cause that loan to be broken, then keep reading. If in fact the predictions are correct and the OCR does drop, then the result of this will be a reduction in swap rates and a potential INCREASE in your break fees. These increases can be small and manageable or (as we have seen) they can be large enough to throw your potential refinance or restructure into turmoil. If you are in a position to, then I would break your loan before the 11th.

If you are restructuring with your existing bank and keeping your lending there, then get the structure in place now. If you are thinking you will wait until after the 11th to decide on your fixed term (and I support that) then put your loan on floating now and fix later. This will keep the break costs to a minimum. If you are looking to switch banks as part of your restructure then there are couple of options:

  1. Get the refinance completed before the 11th. This could be hard as every man and his dog will be having the same thought and the pressure on lawyers and banks could make this unachievable… worth a try though.
  2. If option one isn’t achievable then see if the new bank will put in place a temporary overdraft to fund the break fees so that you can move to floating as per advice above. This is not doable at all banks and may require a some sort of solicitor undertaking that the refinance will proceed, so for this option, get your advisor to work with your bank for a solution.

Everyone’s situation is different but if you’re heading into a restructure thinking you’re about to save a whole lot of money by reducing your rate, then consider the above and plan properly.