Should you refinance your mortgage? New Zealand’s housing market has been trending upwards for years now. Cheap mortgages, rock-bottom interest rates and a seller’s market have meant most homeowners haven’t had to think too much about how to pay off their mortgage. However, post-pandemic, we’re finally seeing a cooling of the market, and interest rates that will put a squeeze on many household’s budgets.
The last two years have seen a lot of change in mortgage interest rates:
- 1-year fixed rates were down as low as 2.19% during 2020
- 2-year fixed rates dipping to 2.45% in April 2020
- Some 5-year fixed rates dropped as low as 2.99% during this time.
In June 2022 mortgage interest rates have increased to:
- 1-year fixed rates as low as 4.49%
- 2-year fixed rates as low as 5.19%
- 5-year fixed rates as low as 5.79%
Are interest rates likely to rise further in NZ?
Many borrowers who locked in low interest rates two years ago, are now coming off their fixed-term interest rates. Mortgage rates on average are sitting around 6%. However, there are predictions that interest rates are likely to rise further in New Zealand to 7.5% this year.
Coupled with rising inflation, everyone is feeling the pinch of paying more for everyday basics like groceries, petrol and household goods. Families or individuals with mortgages might find their budgets are stretched even tighter in the coming months.
How can I manage my mortgage repayments with interest rates rising?
Setting up a proper budget is one of the best things you can do to help pay down your mortgage. If you don’t know where your money is going, it’s hard to manage it. Changing your payments from monthly to fortnightly can help too. This can even reduce thousands of dollars in interest payments over the course of your loan as you pay off the principal debt faster.
Getting the right financial advice regarding whether your should refinance your home loan is also essential. If your mortgage hasn’t come off its fixed rate yet, there’s a high probability your fix term will end within the next twelve months. This means, lots of households will need to make financial decisions about whether to refix or take somewhat of a gamble on a floating rate.
Talking to a mortgage advisor is a great idea. While your bank can talk to you about their interest rates, many banks aren’t qualified to give independent financial advice. As independent home loan specialists, the team at Ingerson can. We can talk through your current payments, your budget and goals and give you specialist advice to make paying off your mortgage in the years to come more manageable.
Should I refinance my mortgage through my bank?
If your mortgage has come off its fixed term and you’re thinking of refinancing, talk to a home loan specialist before you offer a new term from your bank. They can help:
- Get you a better rate. If your mortgage has come to the end of its fixed-term period, your bank may reach out to you directly with a new interest rate. What many people don’t know is this interest rate is often higher than what a mortgage advisor can negotiate on your behalf.
- Explore refinancing options with other banks. A home loan specialist can explore all of the options from a wide range of banks — including your current lender. This research takes a mortgage broker a fraction of the time it would take you and at no added cost to your mortgage.
- Break a fixed term low rate for a higher long-term rate. If you’re currently benefiting from a low interest rate, but that rate is coming to an end, it could be worth breaking this rate in favour of locking in a slightly higher long-term rate. As interest rates are predicted to rise, you may benefit from paying slightly more now, but avoiding even higher rates if you were to fix in nine months’ time.
- Splitting your mortgage. Many borrowers don’t realise they can split their mortgage between different rates on a fixed or floating mortgage. This can benefit borrowers who might have inconsistent incomes or chancing personal or financial circumstances.
- Remove low equity premiums. Low equity premiums are usually charged towards mortgages when borrowers put down less than 20% of the mortgage. To offset this risk, the bank charges an interest rate premium anywhere from 0.25%-1.5% on top of the mortgage. If your home has increased in value, you may be able to negotiate removing the LEP you’re currently paying.
What shouldn’t I do if mortgage interest rates are going up?
The worst thing homeowners can do right now, is do nothing. If your mortgage is currently on a fixed low rate, you won’t be immune to paying higher prices in twelve months’ time.
The best thing you can do is talk to a home loan advisor today. They can explore a wide range of options, all without you lifting a finger. From refixing to financial advice, helping you manage your money and getting more out of your mortgage is part of the job.
Ready to explore your refinance options?
For independent home loan and insurance advice, contact the team at Ingerson. We’ll walk you through your refinancing options and can secure you a long-term rate that works for you.