On 13^th November, the Reserve Bank announced to keep the Official Cash Rate (OCR) on hold at 1%. It was a big surprise because many economists predicted that RBNZ would cut OCR in November 2019. Since then, we have been receiving many phone calls from our clients: “I was expecting an OCR cut this month. If so, that would be followed by another interest rates drop. However, the OCR remains unchanged now. What banks are going to do? How long should I fix my mortgage for?” That’s why in this week’s blog, we’ll update with you the current (November 2019) mortgage rates including six months, one- and two-year fixed term rates, so that you can make an informed decision on how long you should re-fix your home loans. We’ll also share some tips with you on how you can take advantage in the current interest rate environment.

OCR on hold while aggressive mortgage rates was cut by 0.16%

Video Timeline 1. November update: Current New Zealand interest rates 01:20 2. Rates for investment property loans are different from home loans 07:03 3. When should you choose a six-month fixed term interest rate? 03:34 4. When should you choose to fix your loan for more than one year? 04:18 5. What should I do if my current interest rates are high? 05:55 6. Will New Zealand mortgage rates go down further in 2020? 07:40 7. By taking advantage of current low interest rates, you can pay off your mortgage faster

November update: Current New Zealand interest rates

One-year fixed term interest rates:

Few days after RBNZ announcement of OCR unchanged, New Zealand major banks, such as ANZ, Westpac and ASB, have cut one-year fixed-term mortgage rate from 3.55% to 3.39%. It is very common to see New Zealand banks drop their interest rates before Christmas each year. However, a decrease of 0.16% points was not expected. The New Zealand subsidiary of Chinese banks, such as the Bank of China, keep their 3.15% of one-year fixed-term rate unchanged, remaining the lowest mortgage rates in the New Zealand interest rates history. Since New Zealand mainstream banks have decreased their home loan rates, cutting down their gap between the best mortgage rates offered by the Bank of China. Not to mention that the Bank of China does not offer cash back incentive to their borrowers on settlement day. To remain competitive in the home loan market, will Chinese banks follow New Zealand mainstream banks and cut down their mortgage rates? It might just a matter of time.

Two-year fixed term interest rates:

Some New Zealand banks keep their two-year fixed term mortgage rates at 3.45%. However, some banks increase their rates to 3.55%. So, the current one-year fixed term mortgage rate (3.39%) is the lowest amongst all fixed term rates. Just one month ago, some people were not sure about how long they should re-fix their home loans as the two-year rates were the lowest. Now, the situation has changed. You can take advantage of the current special rates and fix your mortgage with one-year term now. This will allow you to re-fix your mortgage with potentially better rates, should the interest rates drop further in the near future.

Rates for investment property loans are different from home loans

Some New Zealand banks, like BNZ and Westpac for example, charge higher rates for investment loans than residential owner-occupied loans. BNZ’s investment loan rates are 0.25% or 0.3% higher than their home loan rates; the difference for Westpac, though, is not as big. We may be able to negotiate with the banks on your behalf and waive the difference.

When should you choose a six-month fixed term interest rate?

Currently, the six-month fixed term rates are 3.99% – much higher than the one-year rates. Fixing your mortgage with the lowest rates is not the best decision for everyone though. In some situations, you might want to fix your mortgage for a shorter period, such as six months. Here are some examples that you might need to fix your loan with less than one year:

• Refinance your home loan
• Plan to sell your property

When should you choose to fix your loan for more than one year?

If you plan to have a baby, start a business, change your full-time job to part-time, or undergo any other major life events that may cause your family net income to decrease in the next two years, we highly recommend you fix your mortgage, or at least some of it, with a longer term, to reduce cashflow uncertainty. What’s more, if you have a large loan, say, one million or more for example, you might need to consider fixing some of your loan for a longer term. Fixing your loan for the long-term will help you minimise the risk of future interest rate increases, resulting in higher mortgage repayments. This strategy, therefore gives you some time to adjust your financial situation.

What should I do if my current interest rates are high?

If your fixed term hasn’t expired yet, and you think about breaking your loan to take advantage of the current low rates, will that be the best solution for you? When you consider breaking and re-fixing your mortgage before waiting for the fixed term to expire, your bank will charge you a one-off break fee. Recently, when we inquire the loan break fees on behalf of our clients, we find it is not worthwhile for our clients to break their loans – almost make no saving if they wait for their fixed term to expire. You might have a better option – refinancing. By refinancing your home loan, not only can you secure a lower interest rate, but you can also receive a cash incentive from your new bank. However, refinancing is not suitable for everyone. You might lose more favourable terms and conditions, and product features offered by your current bank. So, whether refinancing or breaking current loan all depends on your unique situation and an understanding of the pros and cons. That’s where Prosperity Finance can help. As experienced mortgage advisers, refinancing and re-fixing are a key part of our toolkit, and we adopt a strategic outlook to help you make an informed decision.

Will New Zealand mortgage rates go down further in 2020?

Some bank economists predict that the Reserve Bank will decrease the OCR one more time in February 2020. However, it is still tough to say whether it will happen. Even so, the home loan interest rates will not necessary to drop further. RBNZ requires banks to hold more capital, which leads to the increase of the lending costs. Consequently, banks may choose to pass their additional costs to their customers. If this is the case, the interest rates may increase.

By taking advantage of current low interest rates, you can pay off your mortgage faster

Say your current mortgage fixed term is about to expire and you consider re-fixed your mortgage with a lower interest rate, if you keep repaying the same amount, so that more money is paid as the principle, not interests. As a result, you can pay off your home loan faster. However, if you consider borrowing more money to buy more investment properties, keeping repaying the same amount may have a negative impact on your further borrowing capacity. We therefore recommend you seek advice from a professional mortgage broker like us before taking any action. We are always here to help you make decisions. Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. If you’re unsure about what to lock in for your mortgage, call 09 930 8999 for a no-obligation chat with our adviser.

Other Blogs You Might Like:

Why should you consider refinancing your mortgage? What should you do when your interest-only mortgage ends within the next two years? Changes to bank lending policies: An update on your borrowing capacity and high LVR loans