Fixed rate mortgage holders could be slugged extra $1,300 a month
Fixed rate loan homeowners could face up to an additional $1,300 in mortgage payments if the Reserve Bank of New Zealand increases the official cash rate next week.
This figure is from a recent Canstar report and is based on the RBNZ lifting interest rates by 0.25% on April 13.
Canstar general manager Jose George (pictured) said about 50% of mortgage holders were due to roll off fixed rates this year and the financial shock for them would be significant.
“The blow will be harshest for those who bought at the top of the market and took on home loans at historically low interest rates,” George said.
Read more: Mortgage rates might have already peaked in New Zealand
Canstar looked at the impact of interest rate rises on an 80% loan with a 25-year term on a property purchased for $1.2 million – the new median price for a property in Auckland.
“Home rates are tracking up and fast. Average households on one-, two-, or five-year fixed rates coming up for renewal face increases between $900 and $1,300 a month,” he said.
George urged homeowners to speak with a trusted mortgage adviser and ask if a discount was available.
“In some cases, particularly if you are a longstanding customer, this very simple step could result in a cheaper rate being offered,” George said.
Read more: Advisers predicting another interest rate rise
George also offered six financial tips to help struggling homeowners.
Claim your equity benefits: If you have built up equity in your home, ask for a discount. With house prices rising, people who borrowed on a 20% deposit may now own 30% of the property.
Don’t be a rollover: Be aware of timings and reach out to your provider before your fixed rate comes to an end. Some banks allow a new rate to be locked in weeks prior, which can make a significant difference in a market such as this one.
Double up, double down: A common but smart way to pay the mortgage faster and save money in the long run is to split the monthly payment in two and pay fortnightly instead.
Find a little extra: Homeowners should make sure their mortgages are structured to allow overpayments, which avoids any penalties. Often that means having a portion of the mortgage on a floating interest rate. Some flexible home loans accept overpayments.
Be a rate tart: Homeowners sometimes save money by switching banks to get a better rate. Most banks require a registered valuation report for this, which can cost around $1000, so it doesn’t always pay off. If you are with one bank and see another offering a better deal, go back to your bank and squeeze the rate you are paying.
Get in early: With the risk of rates going up this year, homeowners should consider locking in early to get lower rates while they are still available.
