Mortgage Rates in New Zealand
Mortgage rates in New Zealand have followed a similar trend as elsewhere in the world and has resulted in considerable reduction in mortgage interest rates in recent times. New Zealand mortgage rates are based on the Official Cash Rate (OCR) set by the Reserve Bank of New Zealand.
A mortgage is a loan secured by a property or house and paid in installments over a set period of time. The mortgage secures the money borrowed. For most of us, a mortgage is the largest and most serious financial obligation we will ever make. There are many different types of mortgages in New Zealand, each with its own advantages and disadvantages. Understanding these differences will enable you to choose the right mortgage for you. Let's discuss these differences under two main headings: mortgage interest rates and mortgage repayment.
Mortgage interest rates
Firstly, there is the fixed interest mortgage. This means that the mortgage interest rate you pay is fixed for a period from six months to five years. Some advantages of a fixed mortgage interest rate is that you know exactly how much each repayment will be over the term. Fixed mortgage rates are also often lower than floating interest rates, as institutions compete and offer special rates. A single percentage point difference in interest rates can save you thousands of dollars over a year or two. Furthermore you can lock in lower rates if general interest rates are rising. On the other hand, if you decide on a longer term, there is the risk that floating rates may drop below your fixed rate.
Secondly, most institutions offer what is called a floating or variable mortgage rate. In this case, the mortgage interest rate goes up or down according to the general interest rate. This means that repayments also go up or down. Floating mortgage rates are generally higher than fixed mortgage rates. However, it is easier and less costly to make changes to a mortgage with a floating rate.
Mortgage repayment
There are various types of mortgage repayments:
· The Table Mortgage
· The Revolving Credit mortgage
· The Reducing Mortgage
· The Interest-only Mortgage.
Table mortgages are the most common form of mortgage in New Zealand. You can choose a term up to 25 years with most financial institutions. Most of your initial repayments cover interest, while most of the later payments go to paying off the capital sum. Revolving credit mortgages work like an overdraft. By keeping the mortgage balance as low as you can at any time, you pay less interest because the interest is calculated on a daily basis. With reducing mortgages you repay the same amount of capital with each repayment, but a reducing amount of interest. With an interest-only mortgage, you don't repay the money you've borrowed until an agreed time in the future. The main issue is that you will still owe the full amount at the end of the term!
What amount of mortgage will I qualify for?
This will vary depending on the financial institution. A general rule is that, provided you have no other significant debts, you will qualify for a mortgage of around four times your gross annual income.
Deciding which kind of mortgage and mortgage rate is right for you, takes careful planning and consideration. While floating interest rate mortgages may seem more appealing, it is important to weigh up the risks of unpredictable interest rates. A fixed mortgage rate may be a better option.
At NZCU South we offer one of the most competitive mortgage rates in New Zealand. Contact us today.