Find a better interest rate

Interest rates are a major determining factor in many borrowers’ decision to refinance. This interest rate you are paying, and they type of interest rate it is (fixed or floating), can have a big effect on your regular repayments and your overall loans costs

How do interest rates work?

Most borrowers are aware there are two types of interest rates – floating/variable and fixed. Each type is based on different financial market indicators: variable rates are driven by Reserve Bank policy while fixed rates are driven by the wholesale money market.

Floating/Variable Interest Rates

The Reserve Bank uses interest rates to manage people’s expenditure, and thereby inflation and the economy in general. The decision on when and if to move interest rates is based on a range of economic indicators, including the Consumer Price Index (CPI), wages data, jobless figures, and the performance of global financial markets.

The variable interest rates of lenders generally move up and down in line with official interest rate fluctuations. In recent times we have seen that lenders are also free to move their variable rates outside official Reserve Bank movements, and will do so when the cost to them of providing funding increases.

This means the interest rate on a standard or basic variable rate loan may go up or down during the loan term. Different lenders offer different features and rates on their variable loan products, generally according to the amount you are borrowing.

Fixed Interest Rates

Fixed rates are linked to variable rates, but the driver behind changes is different. Where a variable rate is influenced predominantly by the view of the Reserve Bank, fixed rates are influenced by speculations of investors in the wholesale money market.

Lenders base their decisions on fixed rate pricing on bank bill swap rates. Keep an eye on the 90-day bank bill swap rate: when it drops and lenders start following suit, wait for the market to stabilise and then look at fixing your rate.

You should keep in mind discounts and specials on fixed rates are a relatively safe way for lenders to compete for your business because refinancing during a fixed term is rare, so you can get a good rate if you keep any eye out for this type of deal.

Other reasons for refinancing

Other reasons that may influence your decision to refinance include to:

• Borrow money to renovate or invest
• Consolidate debt
• Take advantage of lower priced or better structured loans
• Switch between fixed and variable rate home loans

The decision to refinance may not be an easy one. Do your sums carefully, taking into account all the costs of refinancing, to determine whether or not this is the right move for you, and consult a mortgage broker for further assistance.

For more information on better interest rates

For more information on interest rates, refinancing or the home loan that is in your best interest, talk to your local mortgage broker or call us at any time on 0508 722 205 (+64 9 377 7347).