Property

Interest rate changes top priority for investors

While the RBNZ has put the OCR on pause, it still means a tough road ahead for 50% of mortgage borrowers, including investors, as their fixed term interest rates roll off on to higher repayments over the next six to 12 months.

Tuesday, May 30th 2023

Many investors are likely to see their interest rates double from below 3% to 7% plus and need to be pulling in rent well above the average income to avoid mortgage stress. 

Three of the major banks have already passed on last week’s 25bp OCR increase to mortgage interest rates and these higher repayments will be a source of concern.  

Also, keeping track of changes in fixed interest rates can be hard, and not all deals are advertised.

Before locking in new interest rates, it’s important for property investors to know these five things, says Mortgage Express.

1. Know when your existing fixed rate expires

Before your fixed rate term comes to an end, you’ll need to decide whether to refix your home loan at a new interest rate or change to a floating interest rate. If you choose not to re-fix or if you do nothing, your home loan will automatically switch to a floating interest rate the day after your fixed term ends. To plan your next steps, contact your mortgage adviser or lender at least six to eight weeks before your fixed rate is due to expire.

2. Know what your plans and goals are

When deciding how long to refix, consider your plans and goals. Think about any changes to your current situation that could affect your home loan. For example, are you planning to renovate, extend or sell? Each of these situations requires more flexibility so a shorter fixed term may be preferred.

3. Know what the different options are

Understand the difference between fixed interest and floating interest rates and the pros and cons of each.

Floating interest rates:

  • More flexibility allowing extra repayments.
  • No break fee so you can fix part of your mortgage at any time.
  • Repayments fluctuate with interest rate changes making it harder to budget.
  • Rates tend to be higher than fixed interest rates.

Fixed interest rates:

  • More certainty with set repayments which can simplify budgeting and financial planning.
  • Locking in a fixed interest rate ahead of an increase could save you money.
  • No benefit if interest rates drop.
  • Does not allow for any extra repayments or early repayments.

4. Know how your mortgage is structured
 

Splitting your loan and spreading your risk over a few loan terms could help minimize the impact of higher mortgage repayments as interest rates continue to rise. At the same time, it’s important not to lock yourself into too long a loan term and potentially miss out on an interest rate downturn.

Before refixing your home loan, talk to your mortgage adviser about your current situation and what’s on the horizon for you both short-term and long-term, so you can decide on the right home loan structure for the coming two to three years.

5. Know what other lenders are offering

It pays to check what interest rates and incentives other lenders are offering before you refix with your current lender, and to compare your fixed interest rates to see how they stack up. Talk to your mortgage adviser about opportunities to renegotiate your fixed interest rates or find out if refinancing is right for you.

Comments

No comments yet

SBS FirstHome Combo 6.14
Unity First Home Buyer special 6.55
Co-operative Bank - First Home Special 6.79
Heartland Bank - Online 6.89
Wairarapa Building Society 6.95
Co-operative Bank - Owner Occ 6.99
Kiwibank Special 6.99
Unity 6.99
TSB Special 6.99
ICBC 7.05
China Construction Bank 7.09
Unity First Home Buyer special 6.45
SBS Bank Special 6.49
Heartland Bank - Online 6.55
ICBC 6.69
TSB Special 6.75
Westpac Special 6.75
ASB Bank 6.75
AIA - Go Home Loans 6.75
China Construction Bank 6.75
Kiwibank Special 6.79
Co-operative Bank - Owner Occ 6.79
SBS Bank Special 6.19
ASB Bank 6.39
Westpac Special 6.39
ICBC 6.39
AIA - Go Home Loans 6.39
China Construction Bank 6.40
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
TSB Special 6.59
SBS Bank 6.79
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Growing number of property investment dollars moving across the ditch

Thursday, June 20th 2024

Growing number of property investment dollars moving across the ditch

More needs to be done to offset the loss of millions of dollars in property and business investments to Australia caused by a growing exodus of wealthy Kiwis, says an industry expert.

Market could be near a tipping point

Thursday, June 20th 2024

Market could be near a tipping point

For the first time in more than three years, more people are picking interest rates will fall, rather than rise, but they are unsure whether it is a good time to buy a house.

Friday, June 14th 2024

Lessons from a silent housing crash

It certainly has been a rollercoaster ride for the economy and markets over the past four years.

Options for buyers locked out of scrapped first home loan grant

Wednesday, June 05th 2024

Options for buyers locked out of scrapped first home loan grant

A privately funded financial services company has picked up the slack left after the government scrapped the first home loan grant and set up an alternative scheme.