How will interest rates rises effect me?
Many of us have been enjoying exceptionally low interest rates for the last few years, however all good things must come to an end at some stage. Major banks led first by ASB have all started raising their home loan rates, with change of 0.30% - 0.36% across the board. Based on the Reserve Bank’s indication that the OCR could start rising soon, it’s likely that interest rates in 2022 will be higher than they are currently, however these rises are coming from a very low starting point.
Even with rates beginning to rise there are still some great deals out there if you are buying a turn key or land and build package. Rates ranges as low as 1.68% to 1.99% variable are available with some lenders (subject to change with any OCR increases).
Banks appear to be working to the governments bent of incentivising the general public to build new homes and this deal is also available to investors with a 20% plus deposit
As always there is wide variance in rates and conditions around certain deals between lender so be careful to do your homework or speak us to get guidance.
So if interest rates rise, what then? How will it affect those who currently have mortgages and those wanting to take out a mortgage in the future? Let’s take a look…
EXISTING HOME OWNERS
If you are an existing home owner, who has an interest rate maturing shortly then you might already be on a slightly higher rate as potentially you may have fixed before the current rate cycle hit its lowest point, so recent increases might not make much of the difference. However if your mortgage matures later in the year or next year, and you are facing a potential increase then it’s a good idea to start putting the difference aside so it won’t come as much of a shock if you indeed re-fix at a higher rate. The amount you will need to factor in will depend on your mortgage size. If you need some guidance give your mortgage adviser a call, they can help you calculate things and plan ahead.
Otherwise, something you might want to look at is breaking your current fixed rate to lock in at the current lower rates to safeguard for a while against any rate hikes. This can be tricky to get right however and there may be break fees you will need to pay. If you think this might be an option, then get in touch with us for a chat. We recommend this only on a case by case basis and need to take into account your personal circumstances carefully.
Even economists admit it’s very difficult with confidence to predict the accuracy of interest rates in this climate so we suggest taking everything with a pinch of salt and focus more on what is important to you and your plans as to how long you may fix your loan. Only days after rates increased we closed our boarder to Australia for minimum 8 weeks so who knows where we are by November and with the predicted OCR increase.
LOOKING TO BUY?
If don’t own a home or own it outright with no mortgage, the interest rates move won’t impact you immediately, you will of course you will be paying a higher interest rate when if you do take out a loan however.
Since the banks assess affordability at a much higher rate (these are called test rates and you can read more about them here), and this rate hasn’t been adjusted yet, for the meantime your mortgage affordability is unlikely to change, despite your actual repayments being higher than they would have been at the bottom of the rates cycle.
Overall, if you are looking to buy then don’t panic, the current increases are small and coming off a very low starting point so are unlikely to affect your ability to get a mortgage for now, however keep an eye on things and if you want to run the numbers give us a call. For those already with a loan, we can help you get an idea of your current situation, the impact of the increases rates and what might work best for you if interest rates continue to creep up.