New Zealand’s Official Cash Rate (OCR) is being held at 5.5% following the RBNZ’s May 2024 update, with the next Monetary Policy Review and OCR announcement due in July. With some finance experts believing inflation will fall back into the Reserve Bank’s target band over the coming year, the central bank may begin cutting interest rates by the end of the year. For homeowners preparing to lock in a new interest rate, here are 5 essential things to know.
1. Know when your existing fixed term ends
Before your fixed interest rate ends, it’s important to have a clear overview of what your options are. You’ll need to decide whether to re-fix your mortgage or switch to a floating interest rate. By not taking any action, your home loan will automatically be moved over to a floating interest rate the day after your fixed term expires.
Action: Contact your mortgage adviser or lender at least 6 to 8 weeks before your fixed rate ends to discuss the best course of action.
2. Know what your plans and goals are
When deciding whether to re-fix, it’s important to consider any future plans you may have as any changes to plans could impact your mortgage. Are you planning to sell your home, expecting a new addition to your family, or considering a job change? Any of these scenarios will require more flexibility, which could make a shorter fixed-term more convenient.
Action: Check that your mortgage strategy is aligned with your life plans to maintain financial stability.
3. Know the differences between rates
Understanding the differences between fixed and floating interest rates is vital for making informed decisions about your mortgage. Here’s a quick recap of these:
Floating interest rates - move up and down, or "float," in relation to economic or financial market conditions.
- Offer greater flexibility for making extra repayments.
- No break fees, allowing you to fix part of your mortgage at any time.
- Repayments will vary with interest rate changes, which can make budgeting harder.
- Typically higher than fixed interest rates.
Fixed interest rates - will not change during the period (term) of the fixed rate that you choose.
- Provide certainty with set repayments, simplifying budgeting and financial planning.
- Locking in a fixed rate before an expected increase can save money.
- No benefit if interest rates decrease.
- Restrict extra repayments or early repayments.
Action: Get financial advice from a mortgage adviser to help you decide whether floating or fixed interest rates are right for your situation.
4. Know how your mortgage is structured
Splitting your mortgage across multiple terms helps spread your risk and mitigate the impact of rising interest rates. The floating part of your loan provides flexibility to make lump sum repayments without additional costs, while the fixed part of your loan helps to spread risk if interest rates go up or down.
Action: Decide what’s most important to you: flexibility or security, and then get financial advice from a mortgage adviser to determine the right loan structure.
5. Know what other lenders are offering
Before committing to a new fixed interest rate with your current lender, it’s worthwhile researching what other lenders are offering to see how your own loan stacks up. Different lenders offer different rates and incentives and switching to a new lender could mean you save on interest charges or with cashbacks.
Action: Work with a mortgage adviser to shop around and compare lenders if you’re considering refinancing your loan.
Navigating the complexities of mortgage finance
Whether you're re-fixing your interest rate or considering refinancing, navigating the complexities of mortgage finance can be overwhelming. But you don’t need to face it alone!
The experienced team of advisers at Mortgage Express are here to support you every step of the way. With access to a panel of lenders and a wealth of experience in finding lending solutions, they can help you secure the most favourable interest rates and loan terms for your unique situation. Contact Mortgage Express to connect with a mortgage adviser near you.
