Could you save more than $90,000 on your home loan?

After a three-year breather, the cash rate is finally on the rise again, with the Reserve Bank of New Zealand (RBNZ) announcing a 0.25% increase to 2.75% in March. Combined with last year’s high-LVR volume capping, loan conditions are becoming more challenging for would-be and recent buyers. Nevertheless there are healthy savings for borrowers who are prepared to negotiate, with our recent analysis of 95 home loans finding a difference of 59 basis points on current floating home loan rates.

On a $300,000 home loan over 30 years, a 59 basis point difference equates to potential interest cost savings of $93,000 over the life of the loan, as well as potentially cutting the term of the loan by more than four years.

So how does that work? It’s all about negotiating a lower rate but keep repayments at the higher level. For example:

Loan Size Interest Rate Monthly Repayment Total Repayment Over Life of the Loan (30 years)
$300,000 6.19% $1,835 $660,766
$300,000 5.60% $1,722 $620,005
Saving $113 per month $40,761
If borrowers negotiate low rate but keep repayments at higher level…
$300,000 5.60% $1,835 $567,333
Saving $98,433
Source: CANSTAR. Based on $300,00 loan with 80% LVR over 30 years. Rates on CANSTAR database, April 2014.

There’s no doubt that the interest rate on your home loan remains one of the biggest factors affecting the cost of the loan over its lifespan. So for households, keeping your repayments slightly higher when negotiating a low rate could potentially mean a fantastic overseas holiday, or retiring a year earlier. It’s well worth the effort! CANSTAR makes home loan comparison easy. Our Home Loan Star Ratings compares 95 home loans from 10 lenders across five categories of floating, fixed rate and line of credit loans for both residential and investment purposes, with several mortgage providers offering 5-star value.

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