All major banks offer less than 4 per cent, so should you lock your mortgage in?

Monday, 8 April 2019

Here's how to get on top of your mortgage.

It's a good time to be a home loan borrower.

Banks are now offering interest rates below 4 per cent out to terms as long as three years.

Economists say further cuts may be on the horizon. Westpac economists predict the Reserve Bank will cut the official cash rate to 1.5 per cent next month.

They said it could mean further cuts in fixed home loan rates. At the moment, Kiwibank, Westpac, SBS, TSB, BNZ and ASB are all offering 3.99 per cent fixed for two years.

* One home loan application gives four different responses from banks

* Banks hit savers first when interest rates are falling**

Compare that to 10 years ago - in April 2009, borrowers were being offered an average 6.2 per cent - still better than the 9.6 per cent advertised in early 2008.

It means someone with a $500,000 mortgage now pays $1216 a fortnight over 25 years, compared to $1514 10 years ago.

Falling mortgage rates mean someone with a $500,000 mortgage can be $300 a week better off now than they were 10 years ago.

Brad Olsen, an economist at Infometrics, expected the cash rate to drop next month and to fall to 1.25 per cent by the end of the year.

That would have some impact on the rates offered to borrowers, he said.

'The floating rate for first mortgage new customers remains stagnant, and we don't expect that the pass through of an official cash rate drop will eventuate, or if it does, it won't be a material shift. Fixed rates have been lower recently as banks position for more share, but the fixed rate is more driven by lower 10-year bond rates,' he said.

'If you're looking to fix it might be worth shopping around and waiting a bit. At the same time, with sales volumes lower at the moment, there's a chance for potential buyers to haggle terms and rates with their bank to find a good deal. If you're not already, it's time to consider switching from a floating to a fixed rate.'

Westpac said two-year rates seemed to offer the best value for borrowers - long-term rates looked expensive, they said.

Banking expert, Claire Matthews, of Massey University, was unconvinced there would be much change ahead.

'The recent reductions have effectively been a response to that expectation. If there are expectations of a further reduction in the official cash rate or the reduction in the rate is greater than expected, then further reductions in mortgage rates are possible.'

She said while the current environment was good for borrowers, it was hard on depositors. 'Some of whom may be relying on the income from bank deposits.'