As the cost of living soars, every little saving most certainly counts. The Government’s temporary relief measure on fuel taxes will help many struggling with household bills, but it’s impossible to know how long the global turmoil will affect prices across many essential goods.
So where, in this environment of rapid cost increases, do we still have some control? This may sound surprising, but home loan rates.
Home rates are tracking up, and fast. Should they refix now, average households on one-, two- or five-year fixed rates face increases of between $900 and $1300 a month compared to rates a year ago. (Our analysis throughout this piece considers an 80% loan with a 25-year term, on a $1.2m property.)
As around 60% of mortgage holders are due to roll off fixed rates this year, the financial shock will be significant. The blow will be harshest for those who purchased during the property market’s recent boom. Those who bought at the top of the market and took on home loans at historically low interest rates.
However, there are ways to give yourself a ‘rate cut’ to soften the budget blow.
The first basic step should always be to speak to your home loan provider and ask if they’ll offer a discount. In some cases, particularly if you are a longstanding customer, this very simple step could result in a cheaper mortgage interest rate being offered.
How to Cut Your Mortgage Interest Rates
Other ways to give yourself a rate cut include:
Claim your equity benefits
If you’ve built up equity, ask for a discount. There are often discounts for those with 80% or more equity in their property. As new council values have recently been released, it may be easier to get an understanding of your equity in the property.
We crunched the data and found a $480 saving per month – calculated on average market rates for our example $1.2m property – for those who had 80% equity, compared to those with 90%. Savings could be even greater if your equity sits at, say, 60%. Talk to your home loan provider and make the case that you deserve a discount.
Don’t be a rollover
Don’t automatically roll from a fixed rate to a floating one, which is generally much higher. Be aware of timings, and reach out to your provider before your fixed rate comes to an end.
Some banks allow a new rate to be locked in weeks prior, which can make a significant difference in a market such as this one. Our research showed that rolling over from an average one-year rate to an average floating rate would cost an extra $477 a month, on our example property.
Double up, double down
Split your monthly minimum repayment into two, and pay fortnightly, instead. A little trick of the calendar (there are more than four weeks in a month!) means you end up paying more, and probably won’t even notice. This little tweak can save nearly $7000 in interest payments on our example mortgage over its term.
Find a little extra
Make an extra contribution per month of, say, $100. It’s the old classic of simply paying a little more. Skip one fancy dinner over the month and you’ll save more than $20,000 over the term of the loan.
Another option? Do all of the above and get ahead of the household budget crunch. A few minutes of research and a call to your home loan provider could work wonders for your financial future.
About the author of this page
Jose George is Country Manager for Canstar New Zealand. Jose has a strong understanding of NZ’s financial system, and a successful track record in banking and financial services. Before joining Canstar, he worked in senior positions in the cards and payments industry, at American Express and at three of the Big Four banks: ANZ, ASB and Westpac.