What’s the best strategy for choosing a new interest rate?

In last week’s update we saw the (OCR) Official Cash Rate increase to 3.50%. At the time of writing we have only seen two of the major banks make a move to increase their rates so far - which are ANZ and Westpac.

So, if you’re coming off a fixed rate soon what's the best strategy for you?

• If you've got good affordability and the higher interest rates aren't going to affect you too much you could probably look at a short-term rate.  Shorter-term interest rates like the one and two year rates suit those looking for lower regular payments because the interest rates are cheaper in most cases.
• If the increase in rates is going to affect you, then now is the time to look at your budget,  work out what you can afford and fix for an appropriate term. This may mean fixing for a longer term or even splitting your loans between one and three years to offset it a little bit. Longer-term rates like the three, four and five years are for those wanting to know precisely what they will be paying over a longer period of time which gives you greater certainty when trying to work out your budget and can take a lot of stress out of the picture.

What else can you do to lower your mortgage repayments? 

Another great way to lower your repayments is to utilise any money you may have sitting in your savings and everyday accounts to “offset” the interest payments on your mortgage. This type of loan is known as an offset mortgage.

With an offset mortgage, the aim is to maximise the funds you have in your accounts each day to offset the balance on your mortgage.  As an example, if you have a $200,000 mortgage and $10,000 across your savings and everyday accounts with the one bank, they would only charge interest on the difference, which in this case would be $190,000.

Check out this informative video from Kiwibank which gives a good illustration of how it works.  

There are only three banks currently offering this product so make sure you have a chat with us to see if it's suitable for you.  If you are not currently with a bank that offers this product, then now would be the time to get you properly sorted with one that does and truly put your money to work for you!