Essential Tips for Locking in Your Interest Rate

Following the May 2024 update from the Reserve Bank of New Zealand (RBNZ), the Official Cash Rate (OCR) is being held at 5.5%. With inflation tracking downwards, closer to the RBNZ’s target range, some economists believe interest rates could begin dropping as early as the first quarter of 2025. If your fixed term interest rate is nearing its end, here are some important considerations before refixing your home loan.

1. Know When Your Existing Fixed Term Ends
Before your fixed interest rate expires, it’s crucial to decide whether to re-fix your mortgage or switch to a floating interest rate. If you do nothing, your home loan will automatically switch to a floating interest rate the day after your fixed term ends.

Action: Contact your mortgage adviser or lender at least 6 to 8 weeks before your fixed rate ends to discuss the best course of action.

2. Know What Your Plans And Goals Are
Consider any future plans that could impact your mortgage. Are you planning to sell your home, expecting a new addition to your family, or contemplating a job change? Any of these scenarios might require more flexibility, making a shorter fixed-term more convenient.

Action: Align your mortgage strategy with your life plans to maintain financial stability.

3. Know The Differences Between Rates
Understanding the differences between fixed and floating interest rates is vital for making informed decisions about your mortgage. Here’s a quick recap:

Floating Interest Rates:

• Move up and down based on economic or financial market conditions.
• Offer greater flexibility for making extra repayments.
• Have no break fees, allowing you to fix part of your mortgage at any time.
• Have varying repayments when interest rates change.
• Are typically higher than fixed interest rates.

Fixed Interest Rates:

• Remain constant during the fixed rate term.
• Provide certainty with set repayments, simplifying budgeting and financial planning.
• Could save money if interest rates are expected to rise.
• Offer no benefit if interest rates decrease.
• Restrict extra repayments or early repayments.

Action: Get financial advice from a mortgage adviser to decide whether floating or fixed interest rates – or a combination of both - are right for you.

4. Know How Your Mortgage Is Structured
Splitting your mortgage across multiple terms can help spread your risk and mitigate the impact of rising interest rates. Keeping a portion of your loan on a floating interest rate offers you flexibility to make additional repayments, while the fixed part of your loan helps spread risk if interest rates change.

Action: Decide what’s most important to you: flexibility or security, and then get financial advice from a mortgage adviser to determine the right loan structure.

5. Know What Other Lenders Are Offering
Before committing to a new fixed interest rate with your current lender, research what other lenders are offering. Different lenders offer different rates and incentives, and switching to a new lender could mean saving on interest charges or benefitting from cashbacks.

Action: Work with a mortgage adviser to shop around and compare lenders to determine if refinancing is right for you.

Navigating The Complexities Of Mortgage Finance
Whether you're re-fixing your interest rate or considering refinancing, navigating the complexities of mortgage finance can feel overwhelming. Which is why it helps to work with an expert. Contact a Mortgage Express branded mortgage adviser today and get help securing the most favourable interest rates and loan terms to fit your situation and advice at every step of the way.

'This publication is intended for general informational purposes only. While efforts have been made to ensure accuracy, the contents should not be relied upon for making decisions related to any products described herein. Any information or recommendations provided do not consider any individual's specific financial situation or goals. It is strongly advised that readers seek independent legal or financial advice before taking action on any matters discussed in this publication. No liability is accepted for any loss or damage resulting directly or indirectly from any advice, opinion, information, representation, or omission contained herein, whether negligent or otherwise.'