Interest rates play a huge role in how much you’ll pay to the bank over time for your whare. Understanding how they work is critical! Some of the key things to be aware of are:
💡 Interest rate changes. Banks can change the rates at any time, up or down. Sometimes the banks will change rates in sequence with other banks (for competitive reasons) or it can be a standalone change. The Reserve Bank of New Zealand (RBNZ) increases or lowers the Official Cash Rate (OCR) based on economic conditions and the banks can change their rates up or down in response to that, plus other factors like wholesale financial markets. The RBNZ reviews the OCR seven times per year.
💡 Fixed vs. Floating: A fixed-rate mortgage gives certainty of a rate across a period of time – 6 months, 1 year or more – up to 5 years, while a floating rate offers flexibility. Talk to the bank or a mortgage advisor about what might work for you and your whānau. There are also factors to consider with each option around restrictions on extra payments and terms and conditions you need to understand. Make sure you also fully understand the terms of your loan agreement and do your due diligence on the property you are looking to purchase – this can save a lot of hassles down the line.
What can you do today?
💰 Use a mortgage calculator (these are available online, on the websites of most major banks) to see how differences in the interest rates and contribution amounts can make a big difference to the amount you repay over time.
The information contained in this document is intended for general guidance and information only and is not personalised to you. It does not take into account your particular financial situation or goals.
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