Back in August, the Reserve Bank of New Zealand dropped the Official Cash Rate (OCR) by 0.5 basis points to
1 per cent – the lowest it’s ever been. This had a flow on effect to consumer lenders and banks who have now dropped their already low home loan interest rates to reflect the OCR cut.

Rates in New Zealand are now lower than they’ve ever been and they could go even lower. What does this mean for your mortgage?

Home loan savings

The biggest cost of owning the average New Zealand home is mortgage interest. To give you an idea of how much interest could set you back over the life of a loan, let’s say you’ve bought a home at NZ’s median price, with a 20 per cent deposit and a $500,000 – 30 year loan @ 3.99%p.a.

If you didn’t make any extra repayments, you’d pay $343,249 in interest by the end of the 30 year term.  On that same loan, a small rate cut of just 0.5 percentage points could save you approximately $50,000 in interest.

Refinancing well could save you a lot of money.

Refinancing for a better deal

If you haven’t refinanced your home loan in a while, your rate could be sitting far above the market, costing you thousands every year. Despite that, thousands of Kiwi property owners leave their mortgages to tick over without making sure that they’re getting the best deal possible.

Don’t make the same mistake. Check your home loan regularly to make sure it matches up to the market, and if it doesn’t, refinance for a better deal. 

Should I fix or float?

Thanks to the uncertainty of the current environment, we get a lot of questions about whether homeowners should fix or float. The answer to this question depends entirely on your situation.

It’s a good idea to keep an eye on market interest rates.

The pros and cons of fixing

• Certainty: your monthly repayments won’t go up or down during your fixed term
• Protection: if market rates increase your rate will stay the same until the fixed term ends
• Inflexible: you may be charged extra fees if you pay your loan off early or make extra repayments
• It’s a gamble: if market rates decrease further your rate will stay the same

The pros and cons of floating

• Mirror the market: if market rates decrease yours will too (and vice versa)
• Higher rate: floating rates are usually higher than fixed rates at any given time. Right now, the average floating rate is almost one percentage point higher than the average fixed rate

With all that in mind, there is little to suggest that market interest rates will go up in a hurry in the near future. The Reserve Bank hinted that the OCR might go even lower in their most recent press release, and the majority of media pundits have already predicted further rate cuts.

This makes it more important than ever to seek expert advice on your mortgage to ensure it isn’t costing you more than it should. Give the team at PTR Mortgages a call today to get started.