The cash rate is down again…

Cash rate cut or not, many borrowers can do betterThe RBNZ moved again on the official cash rate in September – cutting to a low of 2.75% and leaving the door open for further reductions. Some of our financial institutions have been quick off the mark, announcing immediate reductions in their floating rates. Kiwibank was quickest off the mark, announcing almost immediately after the RBNZ statement that it has made immediate cuts to variable and revolving (floating) mortgage interest rates following the announcement by the Reserve Bank.

The rate cuts match the full reduction of 0.25% bringing the floating rates down from 6.15% to 5.90%. The reduction is immediate for new customers and will take effect in two weeks for existing customers.

What does the RBNZ rate cut mean for borrowers?

When it comes to rate cuts, the real message for home loan borrowers is to give themselves an ever bigger rate cut by shopping around!

On CANSTAR’s database, there is currently a difference of 36 basis points between the highest and lowest floating rate home loans we survey, as follows:

  • Maximum: 6.35%
  • Minimum: 5.99%
  • Average: 6.20%

What sort of difference could that make on your loan? Well that depends on the size of your loan, but here are some examples based on the difference between 6.35% and the Kiwibank-announced 5.90% …

Loan $ Repayment @ 6.35% Repayment @ 5.90%
$200,000 $1,332 $1,276
$300,000 $1,998 $1,915
$400,000 $2,663 $2,553
$500,000 $3,329 $3,191

Source: CANSTAR. Based on a home loan over 25 years.

Those who are willing to fix their rate for a couple of years can potentially do even better, with the minimum and maximum 2-year fixed rate on CANSTAR’s database being 4.65% and 5.49% respectively. Here’s what that interest rate would equate to on a 25 year mortgage…

Loan $ Repayment @ 5.49% Repayment @ 4.65%
$200,000 $1,227 $1,129
$300,000 $1,840 $1,693
$400,000 $2,454 $2,258
$500,000 $3,067 $2,822

Source: CANSTAR. Based on a home loan over 25 years.

It’s not all about the interest rate of course; while the interest rate is going to be a very significant factor for borrowers, features such as the availability of an offset account, the ability to make extra repayments and/or redraws and to split the loan can all be important. As a borrower, assess what you need from a loan and find a product that has the ideal mix of price and features to suit your needs.

CANSTAR helps to make that search easier, assessing 56 loans from 10 providers across floating, fixed-rate and line-of-credit loans for both residential and investment purposes.

Which companies offer outstanding value home loans? Read our latest Home Loans Star Ratings Report for more information.


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