Home Loans: Get your own cash rate cut

Home Loans: what the cash rate cut means – RBNZ cuts OCR to 2.75%Citing global uncertainty but a reasonably healthy domestic economy (and perhaps spooked by rising house prices in the urban areas)  the Reserve Bank (RBNZ) has made the call to keep the cash rate on hold at 2.25%. The RBNZ has, however, left the door open to further rate cuts in the coming months.

“There are many uncertainties around the outlook. Internationally, these relate to the prospects for global growth, particularly around China, and the outlook for global financial markets. The main domestic risks relate to weakness in the dairy sector, the decline in inflation expectations, the possibility of continued high net immigration, and pressures in the housing market.

Headline inflation remains low, mostly due to low fuel and other import prices. Annual core inflation remains within the target range. Long-term inflation expectations are well-anchored at 2 percent. However, as we have previously noted, there has been a material decline in shorter-term expectations.

We expect inflation to strengthen as the effects of low oil prices drop out and as capacity pressures gradually build. Monetary policy will continue to be accommodative. Further policy easing may be required to ensure that future average inflation settles near the middle of the target range. We will continue to watch closely the emerging flow of economic data.” Statement by Reserve Bank Governor Graeme Wheeler.

Should you review your mortgage?

Currently on CANSTAR’s database the average residential floating home loan rate is 5.62%, but borrowers should still compare their home loan options, with a 40 basis point difference between the highest and lowest floating home loan rates, and a whopping 61 basis points difference between highest and lowest 3 year fixed rates.

The 40 basis point difference in floating rates could make the following difference on a home loan monthly repayment, based on a loan over a 25 year term:

 

Loan Amount $500K $450K $400K $350K $300K $250K $200K
Interest Rate 5.85% 5.85% 5.85% 5.85% 5.85% 5.85% 5.85%
Monthly Repayment $3,175 $2,858 $2,540 $2,223 $1,905 $1,587 $1,270

 

Loan Amount $500K  $450K  $400K  $350K  $300K  $250K  $200K
Interest Rate 5.45% 5.45% 5.45% 5.45% 5.45% 5.45% 5.45%
Monthly Repayment $3,055 $2,749 $2,444 $2,138 $1,833 $1,527 $1,222

 

Difference $120  $108  $96  $84  $72  $60  $48

Source: canstar.co.nz. Calculations are approximations only and do not take into account any ongoing loan fees. Based on a 25 year loan, monthly repayments.

Compare home loans hereCompare home loan rates here

 

 

Look at it this way: your mortgage is likely to be the biggest debt you will ever have, particularly given current housing prices in many areas. Even a small difference in home loan interest rate can make a reasonably difference to your monthly repayments.

You don’t always have to switch home loan providers to secure a lower home loan rate; simply knowing what’s available in the market can put you in a great negotiating position with your financial institution. Why not go shopping!

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