Tauranga home owners could reap savings of up to $70 a week as banks slash fixed mortgage rates to record lows, but those who want to break loans may face hefty penalties.
First-home buyers hoping to nab a rate below 3 per cent would also have to stump up a 20 per cent deposit but those who used the windfall wisely to pay down their existing mortgage could save thousands and cut years off the term.
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Banks including Kiwibank, ASB, Westpac and ANZ have started the price war competition, which has been welcomed by mortgage brokers.
Kiwibank general manager of product Nicole Pervan said its 2.99 per cent fixed loan for one year had created a lot of interest. One third of its customers had a fixed rate expiring in the next six weeks or were on variable.
An average loan size of $440,000 re-fixed would mean savings of $50 to $70 a week, she said, and those who could afford to put that back on their mortgage could make significant inroads.
"If customers can keep repayments the same, it will mean they can pay down their loan faster while also protecting them from interest rate rises in the future."
ASB has cut its two-year fixed term rate to 2.99 per cent, down from 3.49 per cent.
Executive general manager retail banking Craig Sims told NZME the reduced rate would help New Zealanders manage their home loans during what has been a challenging period, as well as support others into homeownership.
Westpac had followed suit with a two-year term. A spokesman said other rates cut included three, four and five-year terms to 3.39 per cent, 3.49 per cent and 3.59 per cent respectively.
At the new 2.99 per cent rate of interest a customer who made minimum repayments on a $300,000 loan with a 15-year term would save $141 a month, he said.
ANZ external communications corporate affairs senior manager Stefan Herrick said fixed-rate home loans gave customers certainty about their payments.
The bank had matched the 2.99 per cent fixed for one year and he said those wanting to break mortgages would be subject to factors including the amount, number of days left and how much interest rates had moved.
He said for a loan balance of $380,000 over a 25-year loan term at 3.89 per cent, one-year fixed in May 2019, the minimum weekly payments would have been about $460 a week.
If the customer refixes at 2.99 per cent one year, the minimum weekly payments would be about $420 a week, saving $40 a week.
New Zealand Bankers' Association chief executive Roger Beaumont said banks operated in a very competitive environment and worked hard to attract and retain customers.
When the Reserve Bank lowered the official cash rate from 1 per cent to 0.25 per cent in March, that had an impact on retail interest rates, he said.
Beaumont said while the loan-to-value ratios had also been temporarily removed, banks would continue to lend responsibly and eligibility criteria would still apply.
Majesty Mortgage Brokers Tauranga director Luke Turner said people could lock in an interest rate 60 days before it came off.
Generally speaking he said it was not worth breaking a fixed-term loan because of the associated costs as the fee would be about the same as the savings and most banks wanted the money upfront.
Only about one in 10 first-home buyers had a 20 per cent deposit so that was another "catch 22 scenario".
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Turner said he had been fielding plenty of inquiries during lockdown but, despite the LVRs being removed, "nothing has really changed their yet and we are still waiting on clarity from the banks".
Rapson Loans and Finance director Chris Rapson said it was inevitable banks would drop mortgage rates.
He was also an advocate for paying down your mortgage if you could "as rust never sleeps".
"You know, if interest rates go up, then the lower the mortgage they've got, the better. Especially nowadays when mortgages are so high."
Tauranga Budget Advisory Service manager Shirley McCombe said people needed to look at their complete financial situation before making a decision on their mortgage.
"For some families, an extra $40 to $70 per week means they can put food on the table or reduce other high-interest debt. If this is essentially extra money that they don't need elsewhere, the increasing payments and shortening the term might be an option."
"There is no one size fits all."
Rates bargain for couple
Te Puke couple Claire and James McCracken bought a three-bedroom two-bathroom home exactly two years ago. Claire McCracken, an early childhood teacher and mother-of-one, said her and her boat-builder husband's two-year, fixed-term mortgage with the Bank of New Zealand at 5.15 per cent expired this week. With the help of their original mortgage broker, they were able to renegotiate terms with BNZ which meant they would split their mortgage, paying half at 2.99 per cent for a year and the other half at 3.05 per cent for 18 months, she said.
McCracken said this meant their $918 per fortnight mortgage payments would reduce by $190 a fortnight.
"When were first took out the mortgage as first-time home buyers our equity in the property was 16 per cent, but we have spent about $40,000 doing bathroom renovations and our equity has now over 23 per cent."
She said it was a "great relief" that during this difficult time banks were slashing lending rates.
"It's great news, especially for first-home buyers. The timing could not have been better as if we had tried to break or renegotiate our mortgage three months ago, we would have had to pay about $1000 in penalties to do so."
McCracken said she and her husband planned to put some of the extra money into more renovations to further increase their equity.
* New lending: 39,998 customers borrowed $4.8b.
* Reduced loan repayments: 55,820 customers reduce $18.7b.
* All loan payments deferred: 53,808 customers defer $19.2.
- Source NZ Bankers Association