After a series of cuts to the official cash rate over the past twelve months, it’s a great time for both prospective and existing borrowers to consider their home loan options, both in terms of whether the interest rate they are paying is competitive, and whether floating or fixed is the better option for their needs.
What are current home loan rates?
For owner-occupiers, the current minimum, maximum and average home loan rates on Canstar’s database are as follows:
|Table: Residential Home Loan Market – Snapshot of the current market (30/03/2016)|
|Standard Variable||1 Year Fixed||2 Year Fixed||3 Year Fixed||4 Year Fixed||5 Year Fixed|
|Source: www.canstar.co.nz, the search results do not include all home loan providers, and may not include all features relevant to you.|
As the table above clearly shows, fixed home loan rates at the moment are, on average, considerably lower than the average floating home loan rate. In fact based on the above table, there is currently a 98 basis point and 73 basis point difference between the floating rate and the 2 and 3 year fixed rates respectively.
Changes in floating rates tend to be linked to adjustments on the official cash rates and given that the majority of RBNZ rate movements are 25 basis points, that indicates that at least 3 – 4 rate decreases would be necessary in the near future before they are paying on par with two year fixed rates available now.
What type of home loan do we look for?
Interestingly, and based on analysis of around 13,000 users of the Canstar home loan selectors over the past 12 months, it seems that floating rate loans are becoming more popularly-searched than they were previously. In March 2015, less than 12% of Canstar home loan searches were for a floating rate loan. In March this year, just over 20% of searches were for a floating rate. That still leaves 80% looking for a fixed rate though!
Interest rate isn’t everything of course – before fixing for any particular term, consider whether you’re likely to need to break the contract. Also look carefully at any fees that will apply to a change in home loan.
In terms of the type of borrower that visitors identify with:
- 5% – identified as a First Home Buyer
- 0% – identified as a Refinancer
- 0% – identified as an Investor
- 5% – identified as a Builder
These percentages are based on the average over the past 12 months.