Make the most of current interest rates
It's easy to become comfortable with your home loan over a long period of time. While this can be a good sign to show that you're happy with the loan you have, it can also lead you to miss out on other things.
For instance, you might become a little lazy when it comes to reviewing the rate that you are on, and the features that come with your loan. Looking over your home loan every so often will give you the chance to save some money in the long-run, while also getting rid of unnecessary features that you don't use.
Homeowners have been enjoying low floating rates for the last couple of years, with The Reserve Bank of New Zealand keeping the official cash rate steady at 2.5% since March 2011 (making a standard floating rate of 5.75%).
Through lower interest rates, a number of things can happen. More people - such as first home buyers - are able to enter the property market because housing affordability improves. It also allows current homeowners to take advantage of the low rates through refinancing their home loans.
This has many benefits, as it means that you can take the opportunity to restructure your home loan to suit your current needs.
For instance, you could tie your mortgage down to a fixed interest rate over a three or five year period. This is a great option if you're looking for a bit of consistency when it comes to loan repayments.
Another option is to restructure your loan payments so you can own your own home faster.
Now is a great time to get out that fine-toothed comb of yours and run over your home loan. Last month, Reserve Bank Governor Graeme Wheeler said the OCR is expected to remain unchanged for the remainder of 2013 but increases for next year are likely.
Some economists are forecasting that the OCR will increase to 3.5% by the end of 2014 which would make a new floating rate of 6.75%. A further prediction is that it may increase to 4.5% by the end of 2015 which would make the floating rate 7.75%.
So what should you be doing now? Many banks and lenders have spring campaigns with a variety of fixed interest rate specials.
As an example, if you have a loan of $300,000 tied to an interest rate of 5.75% p.a. this would translate into monthly mortgage repayments of $1,750. If the floating rate increases to 6.75% p.a., as some economists expect, monthly repayments would increase to $1,945 a month. If the floating rate reaches 7.75% p.a. this would make the repayments $2,149 a month.
Some lenders are now offering two year rates for around 5.70% p.a. and three year rates for around 6% p.a. You could save yourself some interest, and have certainty on your repayments, if these special offers are right for you.
While you're giving your finances a refresher, you might want to take the opportunity to go through the features that your loan has to offer. If you choose to switch your home loan to another type, then there are likely going to be features that have been added onto it. Saving money on your home loan is about more than just low interest rates.
To pay off your loan faster, your mortgage broker can often negotiate some of the features that you won't use and have them removed from your loan. If, for instance, you don't think you will use repayment holidays or offset accounts, then why pay for them?
Your financial situation is unique so not all offers will be right for you. Talk to your mortgage broker to find out which options will suit you best for now and moving forward.