Rate cutting by banks has continued over the weekend morning with both ASB and Westpac reducing selected interest rates, and this morning BNZ cut a key mortgage rate.
Home loan rates
Westpac has followed ANZ-National and cut its one year fixed mortgage rate to 5.25 per cent. This rate is the lowest unrestricted home loan rate for the one year fixed term by any bank, although Kiwibank does have a 4.99 per cent 'Special' for borrowers who have 30% equity in their property.
This morning, BNZ cut its 18 month 'Classic' home loan rate to 5.10 per cent from 5.89 per cent.
Because swap rates have fallen sharply across the board, most banks will be responding to rate pressure from customers and competitors with a new flexibility on fixed-term mortgage rates. interest.co.nz analysts expect other banks to follow the market down with their own cuts to advertised rates in the next week or so.
The fact that one-year-fixed rates can be had at a meaningfully lower cost than floating rates (which generally average 5.75 per cent from banks), customers will see lower repayment amounts by switching, or can pay their loan off faster by switching and keeping the payments unchanged.
Customers could save about $28 per month in payments for each $100,000 borrowed in a typical loan arrangement. Over the life of a 20-year loan, that is equivalent to about a $6,775 interest saving. Keeping payments unchanged will shorten the loan by one year and four months and save $11,525 in interest over the life of the loan.
These indications assume the change is permanent over the life of the loan, and that is unlikely to be the case. But such calculations are useful in assessing options and benefits between making lower payments or paying loans off faster (which is also known as 'deleveraging').
Term deposit rates
Term deposit rates also continue to fall.
This morning, ASB and BankDirect both removed their 160 day rate of 4.50 per cent and replaced it with a 5 month rate at 4.40 per cent. This follows Westpac's Friday reductions in term deposit rates for all terms of six months to two years (including their SuperGold rates). Westpac did raise its 4 month rate to 4.00 per cent from 3.25 per cent, bringing that shorter term into line with their newly reduced six month TD rate.