What is a 30-year fixed rate home loan?

Co-author: William Jolly

What exactly is a 30-year fixed mortgage, and what are the best fixed interest rates available in New Zealand?

The cost of your mortgage over the 25 or 30 years that it takes you to repay it in full depends largely on the interest rate you pay. With interest rates currently quite low, it makes sense that some borrowers might be looking for a fixed interest rate for as long as they possibly can.

In this article, we show you the best long-term fixed interest rate on home loans in New Zealand.

What is a long-term fixed rate mortgage?

A long-term fixed rate mortgage is a home loan with a fixed interest rate for a long period of time, in some cases up to 30 years. This means the loan’s interest rate is fixed for the full 30 years of the loan.

A staple of the American property market, the 30-year fixed rate mortgage is an unknown quantity to many here in New Zealand. Historically, fixed rate loans have been more popular in New Zealand, although the proportion of fixed to floating loans does vary over time.

There isn’t too much that is different between a 30-year fixed rate mortgage and other fixed rate mortgages, except that the fixed term is so much longer. We discuss the pros and cons of 30-year fixed mortgages below.

If you are considering getting a 30-year fixed mortgage, then it would be wise to seek advice from a financial planner or financial advisor. This is because a 30-year fixed mortgage is a significant legal contract both in terms of committing time and money, and it isn’t a contract that you can get out of easily. So you need to make sure that this would be the right financial decision for your situation.

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Can you get a 30-year fixed rate mortgage in New Zealand?

No, at the time of writing, New Zealand lenders do not currently offer fixed rates for terms of 30 years. In the current market, you’ll be able to find fixed rate home loans for a maximum of 10 years with a very small number of lenders.

The most common fixed loans offered in New Zealand are still the 1-year up to 5-year fixed rate terms, with a few lenders offering a 7-year fixed rate term or a 10-year fixed term.

So, you can’t get a 30 year fixed rate home loan directly. What you can do, however, is take out a fixed rate loan with a term as long as you can find, then refinance with a new fixed rate loan when the first fixed rate term is due to expire. This could bring the total length of the loan to 30 years.

Of course, it all depends on what interest rates are doing at the time your fixed rate expires, whether banks are willing to refinance your loan onto another fixed rate, and what your own personal financial situation can afford.

At the time of writing, the following institutions on the Canstar database offer fixed rate loan terms of 7 or 10 years:

Fixed Loan Product Fixed Rate Term Available
TSB – Residential Fixed 10 yrs 10 years
TSB – Special Fixed 10 yrs 250K+ 10 years
BNZ – Standard Fixed 7 yrs 7 years
Source: www.canstar.co.nz as at 26 September 2018.

Naturally, these are not product recommendations or personal advice. You should always read the product disclosure statement (PDS) and key facts and carefully consider your own financial situation before choosing a home loan.

Take a look at Canstar’s Choosing A Home Loan Checklist if you’re not sure what you should be looking for in a home loan.

When you’re ready to choose a home loan, you can compare your options – both for fixed rate home loans and variable rate home loans – using the Canstar website:

Compare home loans

Pros and cons of 30-year fixed rate mortgages

As with any investment product, there are pros and cons to long-term fixed rate mortgages.

As a fixed rate loan, this type of loan can offer stability in terms of knowing exactly what your repayments will be for a set period of time, as the interest rate doesn’t change due to external factors and the official RBNZ OCR. This can make budgeting more predictable (but not necessarily easier to pay).

On the other hand, there are a limited number of products available for long-term fixed rate loans in New Zealand, and no 30-year fixed mortgages on offer.

The interest rates are also typically much higher than for other types of home loans. The interest rates currently on offer for long-term fixed rate loans is much, much higher than the interest rates for loans with a shorter fixed rate term or standard variable rate loans.

Then you need to remember that when the fixed term ends, the revert rate will apply, and revert rates can be higher than the fixed rates you were paying.

If you decide to switch loans before the 30-year term is up, the break costs can be quite high.

Finally, some long-term fixed loans can also lack the features offered by shorter term fixed home loans, such as offset accountsredraw facilities, and the ability to make extra repayments.

Compare home loan interest rates

Compare shorter term home loans

If, after some deliberation, you’ve decided that a 10- to 30-year fixed mortgage isn’t the right option for you, then there are countless more short-term fixed rate options available to you.

Fixed rate home loans usually come in fixed rate terms of 1 year, 2 years, 3 years, 4 years, and 5 years, but there are longer terms available. These home loans also carry a fixed interest rate determined by your lender, but revert to a variable rate once the term has expired.

You can compare home loans with different fixed rate terms on the Canstar website:

Compare home loan interest rates

The other type of loan available, of course, is the standard floating rate home loan. A standard floating rate home loan has an interest rate that is subject to changes in the RBNZ OCR and other external factors, and your monthly repayments will fluctuate as a result.

This is both a blessing and a curse, as fluctuations in these factors can cause interest rates to fall, making them more appealing, or push them up, resulting in you paying more interest.

Fixed vs Floating Home Loans: Advantages & Disadvantages

While Canstar does not we don’t rate 30-year fixed rate mortgages, we do rate a plethora of other types of home loan products, and we provide educational information on even more products. It’s crucial that you do your own research before committing to a home loan product, and you can use our website and comparison tool below to do so. Happy comparing!

Compare home loan interest rates

Want more finance tips?

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