How to make the most of current mortgage rates
The last few months have provided the perfect storm which has benefitted borrowers and punished savers.
New Zealand interest rates (or more specifically, the Official Cash Rate) remained unchanged at one percent in November. This left those who’d been holding out for a further drop in mortgage rates disappointed.
Given the next review is not until February, with several economists predicting the likelihood of further cuts during the year, should new borrowers sit on their hands and wait for a better deal?
Should you ‘break’ your existing term?
People on fixed rates (fixed mortgage rates or term deposits) have contractually committed to a set rate for a set term and will continue with that interest rate until the end of the term.
While fixed rates can seem attractive at the time they're taken out, if market conditions change, borrowers wanting to save money by re-fixing their mortgage at a reduced rate are likely to be hit with an upfront cost. For borrowers, this cost can be quoted by the bank and calculations can be run on whether breaking the fixed term to take advantage of lower rates is worthwhile.
Fixed or floating rates?
While not for everyone, fixed interest rates give borrowers certainty around the cost of their repayments. This may be ideal for people on a strict budget, or who dislike fluctuations in rates.
People looking to buy a home or existing borrower due to roll off a fixed interest rate are wise to compare current specials and discuss their options with their mortgage broker, such as one of Milestone Directs lending advisers.
Borrowers who want to be able to pay a lump sum off their mortgage, or make extra payments without penalty, are likely to find a floating rate more suitable.
Others could choose a revolving credit facility – different banks have different variants of this.
Alternatively, a blend of the choices above can work well in many situations, but as always, what to do depends on your circumstances.
What’s happening overseas?
While mortgage rates are at historic lows in New Zealand, in the UK, mortgage rates have previously reached as low as 1.75 percent, and in Australia rates outside of the major banks are currently below 3.00 percent.
What to do?
There's no guarantee that NZ fixed rates will fall below the levels currently available, and supporting this, NZ’s largest bank recently stated “…we expect the new bank capital requirements will limit further falls in mortgage rates from here” – though perhaps they’re just a little bit upset about having to hold more funding for every dollar they lend.
That said, rates are lower overseas, and no-one truly knows what will happen here – especially as the interest rates currently experienced across the developed world are historically exceptional.
How to make the most of current mortgage rates depends on your circumstances and attitudes towards the current lending market. For a complementary initial chat – which could include tailoring your mortgage to your personal financial position and determining whether it’s worth breaking your fixed term and/or shopping around mortgage providers – please get in touch with one of our mortgage advisers (mortgage brokers) by completing the form below.