Homeowners could save 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.
Banks including Kiwibank, ASB and ANZ have started the price war, 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 and a 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 refixed would mean savings of $50 to $70 a week, she said and those who can afford to put that back on their mortgage could make significant inroads.
''If customers can keep repayments the same, they can pay down their loan faster while 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 Kiwis manage their home loans during a challenging period, as well as support others into homeownership.
Westpac had followed with a two-year term and a spokesman said other rates had been cut including three-, four- and five-year terms to 3.39 per cent, 3.49 per cent and 3.59 per cent respectively.
At 2.99 per cent interest a customer who makes 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, the number of days left and how much interest rates have moved.
He said minimum weekly payments for a loan balance of $380,000 over 25 years at 3.89 per cent one-year fixed in May last year would have been around $460 a week.
If the customer refixes at 2.99 per cent for 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 operate in a very competitive environment and work 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 affected retail interest rates, he said.
But Beaumont said although the loan-to-value ratios have been temporarily removed, banks would continue to lend responsibly and eligibility criteria would still apply.
Ownit Rotorua manager and registered financial adviser Hayley Hubbard said it would be a welcome relief for those coming off fixed interest rates.
''It will definitely be a help during this whole Covid-19 deal.''
First-home buyers able to take advantage of the rates would also benefit but Hubbard said her team liked to make sure its clients could service a rate over and above that.
She said Ownit continued to field queries during the lockdown about mortgage holidays and deferrals as people ''could see a bit of light at the end of the tunnel''.
Now people were also reassessing their situations with many looking at buying instead of renting, Hubbard said.
Rapson Loans and Finance director Chris Rapson said it was inevitable that banks would drop mortgage rates.
He was also an advocate for paying down the mortgage if possible ''as rust never sleeps''.
''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–$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, 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 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, splitting their mortgage between 2.99 per cent for a year and the other half at 3.05 per cent for 18 months, she said.
McCracken said their $918 a fortnight mortgage payments would reduce by $190.
"When we took out the mortgage as first-time home buyers, our equity was 16 per cent, but we have spent about $40,000 doing bathroom renovations and our equity is 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 pour some of the extra money into more renovations to further increase their equity.
Interest rate slash perfect timing
NZME sales manager Aaron Dent owns a three-bedroom home in Taupō which he built in 2017.
The father-of-one said he currently has six mortgages with BNZ and had renegotiated two of the smaller ones a week ago, paying 3.05 per cent for 18 months for the first and the second at the same rate but for two years.
Dent said of his six mortgages - the two highest fixed-term interest rates he was paying was 3.85 per cent and a three-year fixed-term mortgage at 4.75 per cent due to expire on July 3.
"If had tried to break the 4.75 per cent mortgage now it would have cost me $400 which I decided wasn't cost-effective."
Dent said he currently pays $860 a fortnight for all his mortgages and being able to renegotiate two of smaller ones meant savings of $30 to $40 a fortnight.
"Having so many of the banks slash fixed-term interest rates is unexpected. But it's perfect timing as my partner has just come off maternity leave, and it's great for first home buyers."
Dent said in terms of his other mortgages he would probably hold off renegotiating terms as "late as possible" to see what happens in the next couple of months before locking down a new fixed-term rate.
• 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