Homeowners may qualify for cheaper mortgages

Borrowers may have accumulated enough equity to entitle them to better interest rates, many don't know it. Photo / File

Thousands of homeowners are paying higher interest rates on their mortgages than they need to - but many may not realise it.

Herald on Sunday inquiries reveal that although thousands of borrowers, particularly in Auckland, have accumulated enough equity to entitle them to better interest rates, many don't know it.

It comes after the release of new CVs in Auckland, showing average property value increases of 29 per cent across the city from 2011-2014.

That means the bulk of borrowers who bought property with a small deposit in those years will now have equity of at least 20 per cent, entitling them to better interest rate deals.

Banks are competing for borrowers with more equity because loan-to-value restrictions limit the amount of low-deposit lending they can do. They offer special fixed rates and sweeteners such as cash contributions to those with 20 per cent equity.

ASB is offering a Sony 48" television, PlayStation 4 and $1000 cash to new borrowers with more than 20 per cent. BNZ offers $3000 and ANZ up to $2000.

Banks currently have $134.4 billion of loans in the up to 80 per cent LVR range, $19.4b between 80-90 per cent and $10.6b above 90 per cent.

About 60 per cent of those low-equity borrowers are estimated to be on floating rates, which in some cases mean interest rates more than 1 percentage point higher than advertised specials.

Even if you are on a fixed rate, it is worth checking your equity position because it will likely mean more money in your pocket next time you get a chance to refix.

Broker Campbell Hastie said the monthly payment difference could be significant. "At ANZ, the two-year rate is 6.39 per cent for those with not much equity as opposed to 5.75 per cent for those who do. If you're talking an Auckland-sized mortgage of about half-a-million dollars, it will make a difference."

A $500,000 loan being paid off over 20 years costs $3510 a month at 5.75 per cent, compared with $3695 at 6.39 per cent.

Broker John Bolton said it was important for people whose equity position had improved to negotiate better rates with their bank.

Browns Bay homeowner Natalie Lafitte found her property's CV increased from $440,000 in 2011 to $670,000 this year, putting her under the 80 per cent threshold. But until her broker pointed out the new CV qualified her, her lender, Sovereign, was not going to give her a special rate of 5.75 per cent for two years.

She said other borrowers should ensure they were getting what they were entitled to.