The Reserve Bank of NZ (RBNZ) cut the Official Cash Rate (OCR) by 0.50% last week as we expected. Three main banks are now offering rates starting with a 4, which is getting back to where rates sat for a long time between the end of the Global Financial Crisis (GFC) and Covid.
For existing mortgage holders, lower rates can have a significant impact.
The average loan size for a Kiwi who already owns their home is $319,582 ($546,741 is the average loan for a first home buyer now) according to Canstar research. Many home owners have been or are about to come off rates of around 6.50% and now have access to 4.99%. That’s a rate reduction of 1.51% which on the average loan of $319,582 translates to repayment savings of around $70 per week.
A lot of households have been struggling with higher mortgage repayments over the last few years, but if you’re able to keep your repayments at their current level when you refix onto a lower rate the impact can be quite remarkable and very motivating.
In our scenario above, if the household decided to use the $70/week to keep their payments as they were, that would get them on track to repay their mortgage 8 years early and save over $94,000 in interest costs over the loan (assuming rates stay this way). Motivating stuff!
Some banks will let you reduce the payment back down to the minimum if you need to without hassle and one bank will even give you access to the funds you’ve overpaid even on a fixed rate account should you find yourself needing cash.
These are daily conversations for us at the moment, and it’s great seeing people get on track to financial freedom earlier. Other regular conversations are homeowners who are on high rates and are looking to get out of them and onto something cheaper, but are stuck because of ‘fixed rate break fees’. More on that next month.
*Not financial advice. Contact us for tailored mortgage advice.
