How does your home loan rate?

Research from Canstar shows there is a marked difference between the highest and lowest rates on offer at the banks. Photo / File

It pays to shop around for your home loan.

Despite strong competition among the banks, research from Canstar shows there is a marked difference between the highest and lowest rates on offer at the banks.

The biggest gap for a fixed mortgage was for a two year fixed term at 0.74 percentage points.

Borrowing $300,000 over a 25 year timeframe at the lowest rate of 4.25 per cent would save $127 per month for the two years compared to the highest rate of 4.99 per cent.

The research also revealed the gap between floating and fixed term mortgage rates remains despite the recent drop in the official cash rate.

Last month the Reserve Bank cut the cash rate to a record low of 2.25 per cent which saw most banks trim their floating or flexible mortgage rates.

But Canstar found most people would still be better off on a fixed mortgage rate.

Canstar New Zealand managing director Jose George said: "Based on average rates, floating interest rates would need to reduce by 0.98 percentage points and 0.73 percentage points before interest rates would be on par with current advertised two and three year fixed rates respectively."

However George said those with cash in the bank should also consider a mortgage off-set account.

"The money sitting in an offset transaction account reduces the amount of home loan that you are charged interest on.

"So a large sum of money sitting in an offset account for a while can end up saving you a respectable amount."

A borrower with $40,000 in an offset account against a $350,000 mortgage could save $4000 in interest.

"For those that have cash though, an offset account can be a useful place to park it; the money effectively "earns" your mortgage rate in the form of reduced interest charges on your loan and because you're not receiving that saving as income, it's tax free," George said.

Best home loan rates
• Floating - 4.45 per cent
• One year fixed - 4.15 per cent
• Two year fixed - 4.25 per cent
• Three year fixed - 4.54 per cent
• Five Year Fixed - 4.99 per cent

Worst home loan rates
• Floating - 5.85 per cent
• One year fixed - 4.85 per cent
• Two year fixed - 4.99 per cent
• Three year fixed - 5.25 per cent
• Five Year Fixed - 5.4 per cent
Source: Canstar

Read the full Canstar research and ratings here: