By JULIE MIDDLETON
By Christmas, homeowners with a $100,000 floating-rate mortgage can expect to be paying their bank $30 more a month than they are now.
Interest rates are climbing, and most banks pick that mortgage rates will have risen to at least 8.25 per cent by Christmas. A couple - one the ASB Bank - are picking that floating rates could rise as high as 8.75 per cent, which would take that extra monthly payment to $64.
That's on top of interest rate rises this year, which have already added about $50 a month to the cost of repaying every $100,000 borrowed.
The figures to back up this crystal-ball gazing come from two surveys of bank economists, one by Dow Jones Newswires (of 13 local banks, commercial and merchant) and the other by Reuters (14 banks).
One of the reasons interest rates rise is because Reserve Bank Governor Alan Bollard, in trying to control the economy, tinkers with the official cash rate (OCR).
That rate in turn influences what banks charge you to borrow their money.
The surveys ask economists to pick what they think the Reserve Bank's OCR will be by Christmas. Their hits average out at 6.25 per cent. However, two of the big banks - ANZ and ASB - predict an OCR of 6.5 per cent by year's end.
Talk to bankers and you get a general agreement that floating bank rates sit, on average, about 2 per cent above the OCR, meaning we can expect interest rates of at least 8.5 per cent by December.
Fixed home loan rates are more closely linked to international interest rates, but ASB Bank's chief economist, Anthony Byett, sees one-year fixed rates also sitting around 8 per cent cent by year's end - more than a full percentage point higher, on average, than last December.
So what does that mean?
If you borrowed $100,000 in December last year on a 25-year basis and fixed for a year - which means you've been paying $699.14 a month - you might get a shock come renewal time. Take another one-year term on the new rates and the monthly payments will put you back $771.81 - an extra $73.
Most of us like to put a portion of the total sum we borrow into fixed-rate deals for a year or two as it gives certainty - there won't be huge budget blow-outs if interest rates shoot through the roof.
HOME LOANS
The numbers
1,002,198: Number of residential mortgages in New Zealand at the end of June
$91b: The value of those mortgages.
$91,418: Average home loan debt in New Zealand.
$243,000: Median selling price for homes in June.
Source: Reserve Bank; Tony Alexander, BNZ; Real Estate Institute of New Zealand.
The advice
Want to borrow $100,000 tomorrow? Economists advise:
Tony Alexander, BNZ: "Fixed, two years."
Nick Tuffley, Westpac: "Fixed, no more than two years."
John McDermott, ANZ and National Bank: "It always depends on circumstances, but in general fixing for a broad range of households is possibly the right thing to do."
Anthony Byett, ASB Bank: "I think it would pay to fix for two or three years ."
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