A large number of Kiwi homeowners will be rolling off fixed mortgage rates this year. Rising interest rates, for both them and new entrants to the market, will be a source of worry. We have produced a live table of the mortgage deals available right now. Scroll down to see what interest rates the banks are offering. We've also produced a guide as to why rates are changing.
What interest rates are the banks offering?
Fixed mortgage rates appear to have peaked in January 2023, and banks are already offering discounted fixed rate deals, in response to the market downturn and a shortfall in mortgage sales.
So, what does that mean for the cost of mortgages? Keeping track of mortgage costs and changes in fixed rates can be difficult, especially when some of the best deals haven't been advertised or are only on offer for a limited time period.
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One simple way is to use our mortgage rate table below. Use the search field to find out the best mortgage deals available today.
What do I need to know about current mortgage rate deals if I am a first-home buyer?
Banks compete with each other to lend, and sometimes undercut each other with good mortgage deals when they’re looking to grab market share.
Buyers are not limited to their own bank when they want a mortgage. To get the best deal they may need to change banks. That means shopping around, or getting an independent mortgage adviser to do the legwork on their behalf.
Choosing a mortgage term is the $64,000 question. Whether the best course of action is to fix for one, two, or five years requires some crystal ball gazing. The bank is betting that interest rates will fall and customers will be locked into paying higher rates. Customers hope that by fixing, they’ll pay less in the long run than they would on a variable floating rate mortgage.
Home buyers can choose to split their mortgage into several different portions fixed for different periods of time. This ensures that the entire mortgage can’t roll off fixed rates and repayments soar in one go. The homeowner may also choose to leave a portion of the mortgage on variable/floating rates to enable them to make additional repayments.
What's the Official Cash Rate and how does it affect mortgage rates?
The Reserve Bank of New Zealand raised the Official Cash Rate on April 5, 2023 from 4.75% to 5.25%. The 0.5 percentage point increase was the 11th rise the Reserve Bank has made since October 2021, when the rate was at a historic low of 0.25%.
The next rate announcement will be on May 24.
The Official Cash Rate is the biggest driver of interest rates in the housing market. It is the overnight cash rate at which the banks deal with the Reserve Bank.
When the OCR goes up, the costs to the banks go up for their operations and so they pass that on to borrowers.
The chart below to track the changes in the Official Cash Rate since its introduction in 1999
Why are interest rates rising and when will they peak?
Interest rates are being hiked in New Zealand to bring down inflation. The Reserve Bank's remit is to keep inflation between 1% and 3%. Currently, annual inflation is at 6.7%, according to the Q1 2023 data from the Consumers Price Index. The next data, for Q2 of 2023, will be released on July 19, 2023.
The Reserve Bank is putting up the Official Cash Rate to rein in inflation, and has signalled a peak of 5.5% this year.
The Reserve Bank may hit pause on rate increases, and may even start cutting, when it has more indications that inflationary pressures are weakening.
The chart below shows the changes in annual inflation since 1990
What do I need to know if I'm refixing my mortgage interest rate?
When mortgage interest rate fixes expire after their term, homeowners can choose to refix or leave the outstanding mortgage on a floating rate. Sometimes banks roll over the fix and unless buyers make changes they’re locked in.
The end of a fixed-period is a homeowners’ opportunity to reconsider their financial situation and take advantage of new market conditions. Last time it may be that a two-year fix was the best deal, but now it’s one year or five years. Or the homeowner’s personal situation has changed and they need more certainty for a longer period. Alternatively, they may not need as much certainty and can take advantage of better rates on shorter term fixes or the variable floating rate. A change in life circumstances such as getting married, having a baby, or retiring could loom large in the decision.
Homeowners should start to think through their options towards the end of the old fixed-rate period and might benefit from using an independent mortgage adviser. Their fees are paid by lenders.
Homeowners sometimes confuse refixing with remortgaging and refinancing. Refixing simply means locking in an interest rate for a new term when the existing term expires. Remortgaging, or refinancing, means getting a new mortgage with a different lender or changing the terms of the loan, such as shortening the loan term or accessing equity to borrow more.
What are break fees and how do I avoid them?
Fixed mortgage rates guarantee that a homeowner’s interest rates and repayments remain the same for a set period of time. The most common fixes are one year, two years, or five years.
It’s a gamble that rates won’t fall over that period. Sometimes homeowners decide to break their fixes to take advantage of lower rates, or gain certainty for a longer period of time. To do so, they must pay break fees, which cover the financial loss to the bank of the contract being broken.
It may not be possible to avoid break fees. In fact the only guaranteed way to avoid break fees is to not break a mortgage.
Sometimes, however, it may be worth paying the break fee to get a better rate. When mortgage rates are rising and expected to continue rising, some homeowners may break shorter fixes in favour of a longer period in order to have certainty.
Bank calculations for break fees can be complex and homeowners should request the figure in advance from their bank or get the assistance of a mortgage adviser before making decisions.
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