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A first-home buyer who put down a 20 per cent deposit on a median priced house last year could see their monthly repayments jump by more than $1000 when it comes time to re-fix the
loan.
Research from Canstar found borrowers were paying an average interest rate of 3.3 per cent at the end of 2021 but the average one year fixed term has now jumped up to 4.63 per cent.
For a borrower who took out a loan of just under $822,000 – based on having a 20 per cent deposit for the median New Zealand house price of $1,027,121 – that would see their monthly payments jump from $3599 to $4628.
If they fixed for two years their monthly payments would jump to $4943 with the average two year rate at 5.29 per cent.
Mortgage broker Karen Tatterson said some borrowers were being shocked by the rising interest rates.
“I’ve had a number of conversations with clients around the fact that they didn’t expect it to be as high as it was and they certainly didn’t expect to be paying as much more as they are now.”
Tatterson said there were very few discounts to be had off the advertised mortgage rates.
“We are seeing off-market 4.99 per cent for two years. Most are prepared to offer that but we are not seeing significant discounts around their advertised rates at the moment.”
She said the last time that happened was five or six years ago.
“It is a lot tougher out there and it is really hard and frustrating for people that haven’t been in this market before.
“It’s particularly hard for people that have come into the market at a low rate and have never seen this high rate and never not been able to negotiate discounts in the past.”
Jose George, Canstar New Zealand general manager, said borrowers should shop around the banks to see what was on offer.
Its research showed a big difference between the cheapest and most expensive rates on offer with a one year fixed term ranging from 4.34 per cent to 5.35 per cent.
Selecting the lower rate would see that same borrower paying $3,481 per month versus $3,909 – saving $7,064 in interest costs over the year.
On a two year fixed term it ranged between 4.99 per cent and 5.94 per cent or $3753 and $4170 per month with the higher rate adding $13,298 in extra interest costs over the two year period.
“One thing you should be looking at is to shop around. It is not difficult but it is not for everyone.”
He said those who wanted to switch banks would need a good credit history and have all their paperwork in order due to the additional requirements bought in under the Credit Contracts and Consumer Finance Act in December.
George said it was often easier to negotiate with a borrower’s existing bank than to shift, particularly given the tight requirements for borrowers.
“If you have a good history with your bank you should be starting by speaking with them. It is generally far easier to negotiate when an existing financial relationship is in place than to go to another provider.
“But there are also some good incentives being offered in the market at present which may make it worthwhile to explore other options.”
Tatterson said a lot of people were looking around to get the best rate but ended up staying put with the same bank.
“I think a lot of people a certainly having a look to see what is out there in the market place but bearing in mind there is not a lot of discounting going on and there is certainly not a lot of choice we are seeing most people after having a look around finishing up fixing and generally staying.”
She said many saw it as too much hassle to switch banks or faced challenges under tighter lending rules.
“With the changes last year a lot of people are conscious of the fact that if they change there is going to be a full application. A lot of people are going well, I don’t want to have to go down the pathway of doing a full application because I’m concerned I may not get reapproved because of the requirements around CCCFA now. It’s the devil you know as opposed to the devil you don’t.”
Tatterson said when it came to rate matching main banks would match each other but not the smaller New Zealand owned banks.
“We don’t see the main banks matching the rates being offered by the likes of Heartland Bank and the New Zealand banks. Most Australian owned banks will match the Australian owned banks but the majority of them will not match rates from the NZ-owned banks or those really sharp rates being offered from Heartland Bank.”
Tatterson said the only advantage of switching could be the opportunity to get a cash-back.
This week Kiwibank announced it was offering a 1 per cent cash contribution on new loans up to $10,000.
But a condition of the cashback is that the borrowers banking relationship “doesn’t significantly change for four years.”
Borrowers who leave their bank before the end of the cashback lock-in may have to pay some or all of the money back.
Tatterson said borrowers had to be careful that the cashback lock-in for their existing mortgage had ended otherwise swapping banks could just mean you pay the cashback from your new bank to the old one.
“All you are doing is robbing Peter to pay Paul and locking yourself in for another long cash back period. Most of them are three to four years now.”
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