What effect would negative interest rates have on my mortgage?

With interest rates falling to record low levels, many Kiwis are wondering if they can go any lower? And the answer might surprise you.

The Reserve Bank of New Zealand (RBNZ) has given indications that we potentially might see ourselves in the negatives at some stage in 2021. This wouldn’t likely occur at least until after March, as the RBNZ has said they will hold the Official Cash Rate (which has an effect on whether interest rates move up or down) at 0.25% until March, after which it could drop to 0% or even the negatives.

The way interest rates work is generally simple. You pay an amount to borrow money from a bank, or if you are wanting to store your money in the bank, then the bank pays you. So if we see ourselves into negative territory, does that mean banks will pay us to borrow money?

While that would be amazing for anyone with a mortgage, it likely won’t be the case! All it means is that interest rates will drop even more, to a point where borrowing money is extremely cheap - even more so than it is currently!

This also means that if you are looking to take out a mortgage, or re-fix your mortgage, you will want to consider things carefully before fixing your rates for too long, since there is a chance they will drop further, and you wouldn’t want to miss out on the lesser rates. We can help you out with this, and find the best rate and term for you based on your individual financial situation. 

While interest rates are low and set to get lower, remember that the banks still use a higher rate for “stress testing” (you can read our post about what that is here), and the rate varies significantly between our panel of lenders from 4.09% to the 7.00% mark. While we can hope that these stress test rates drop even further, the banks are tending to still play things cautiously in the long term, so don’t expect these rates to fall too dramatically. 

Remember, we are always here to chat over any questions or concerns you might have, so don't hesitate to give us a call on 03 441 1307