Earlier this month, the RBNZ increased the Official Cash Rate (OCR) by 50 basis points, from 4.75 per cent to 5.25 per cent. It’s the 11th successive increase and takes the OCR to its highest level since December 2008. As some New Zealand mortgage holders prepare to re-fix their mortgage in the next 6 months, many are likely to see their interest rates double from 3 per cent or less to more than 6 per cent. Before locking in new interest rates, it’s important for borrowers to know these 5 things.
1. Know when your existing fixed rate expires
Before your fixed rate term comes to an end, you’ll need to decide whether to refix your home loan at a new interest rate or change to a floating interest rate. If you choose not to re-fix or if you do nothing, your home loan will automatically switch to a floating interest rate the day after your fixed term ends. To plan your next steps, contact your mortgage adviser or lender at least 6 to 8 weeks before your fixed rate is due to expire.
2. Know what your plans and goals are
When deciding how long to refix, consider your plans and goals. Think about any changes to your current situation that could affect your home loan. For example, are you planning to sell your home, do you have a new baby on the way, are you changing your job or lifestyle? Each of these situations requires more flexibility so a shorter fixed term may be preferred.
3. Know what the different rate options are
Understand the difference between fixed interest rates and floating interest rates, and the pros and cons of each.
Floating interest rates:
- More flexibility allowing extra repayments.
- No break fee so you can fix part of your mortgage at any time.
- Repayments fluctuate with interest rate changes making it harder to budget.
- Rates tend to be higher than fixed interest rates.
Fixed interest rates:
- More certainty with set repayments which can simplify budgeting and financial planning.
- Locking in a fixed interest rate ahead of an increase could save you money.
- No benefit if interest rates drop.
- Does not allow for any extra repayments or early repayments.
4. Know how your mortgage is structured
Splitting your home loan and spreading your risk over a few loan terms could help minimise the impact of higher mortgage repayments as interest rates continue to rise. At the same time, it’s important not to lock yourself into too long a loan term and potentially miss out on an interest rate downturn.
Before refixing your home loan, talk to your mortgage adviser about your current situation and what’s on the horizon for you both short-term and long-term, so you can decide on the right home loan structure for the coming two to three years.
5. Know what other lenders are offering
It pays to check what interest rates and incentives other lenders are offering before you refix with your current lender, and to compare your fixed interest rates to see how they stack up. Talk to your mortgage adviser about opportunities to renegotiate your fixed interest rates, or find out if refinancing is right for you.
As a large number of Kiwi homeowners will be rolling off fixed interest rates this year, rising interest rates and higher repayments will understandably be a source of concern. Keeping track of changes in fixed interest rates can be hard, and not all deals are advertised. That’s why it’s important to work with a mortgage adviser – such as those at Mortgage Express – who can help you compare lenders and interest rates to find the right financial solution.
