Four ways to save money in the face of crippling home loan rates
With inflation at an all-time high, New Zealanders are starting to feel the pinch in every area of their lives. From groceries to Christmas presents, many items cost double (even triple) what they were a year ago. With 20% of New Zealand home loans repricing to 6% or higher over the next six months, Kiwis could be paying an extra $12,000 yearly for a $500,000 loan.
Is there a way to save interest, even as interest rates trend upwards? Here are four strategies to save despite the rise:
1. Shop around – and look for cashback
Comparing interest rates is common practice, but as the last year has shown us, things change fast. For example, if you’re considering refinancing and your LVR is under 80%, some banks offer a 1% cashback. If your interest rate is 6%, this will bring it down to 5% for the first year, immediately reducing the interest you pay. Other banks are offering incentives for new builds, such as a 3.5% rate for one year for 70% LVR (three points below average).
2. LVR under 80%? You might be eligible for special rates
You’ll hear talk about LVR regarding home loans. LVR compares the loan size with the property’s value and how much deposit is needed. For example, if the property you want to buy is valued at $1 million, and the bank requires an LVR of 80%, you’ll need a $200,000 deposit (20%).
However, lenders are still allowed to lend beyond the LVR of 80% (up to 10% of new lending), which means you might be able to buy a home with a lower deposit.
Each lender uses a different system to calculate LVR. Despite that, if your LVR is under 80% (meaning you owe less to the bank), you might be able to access special home loan rates – and ultimately, pay less interest in the long term. If you think a property’s value is different from what the banks have calculated, it could be worth spending the money to get a valuation. That thinking can apply to first-home buyers or homeowners looking to refinance.
3. Move from private to bank lenders
This tip is specifically for homeowners who are currently financed by private lenders. If you’re getting spooked by the upward march of interest rates, remember that bank interest rates will always win compared to private lenders.
On top of that, fixing short-term rather than floating will perform better over the long run – if you’re unable to manage fluctuating repayments. That’s because it’s not worth the cost-versus-benefits ratio for banks to compete on floating rates. So the next best thing is the one-year fixed rate.
If you’re currently borrowing from a private lender, refinancing to a bank and fixing short-term could save you thousands in interest. Most private lenders have interest rates of around 8-9%, compared to the average bank rate of approximately 6-7%.
4. Take a 360-degree view of your debt
In New Zealand, other loans, like hire purchases, credit cards and personal loans, make up 11% of total household debt. This unsecured debt is always more expensive than home loan interest rates and accumulates quickly over time. So what can you do to save? If your property’s value has increased, take a 360-degree view of all your debts. Your lender might allow you to top up your mortgage to consolidate other debt – lowering your overall interest. These small changes can make a big difference to your finances. And, instead of dealing with multiple lenders and repayment dates, you’ll have a single loan and one lender – much less stressful.
Ask a trusted mortgage broker
Interest rates are rising, but it’s not all bad news. There are always opportunities to nab a good deal if you know where to look. From cashback deals to short-term fixed rates, always be aware of what’s out there. The easiest way to do this is by working with a trusted mortgage broker.
At Global Finance, we’ve been helping New Zealanders save on interest rates for over 23 years. We understand how to negotiate your terms and conditions when taking out a loan. We can tailor the structure to suit you and your financial circumstances.
Are you worried about rising interest rates? Contact the Global Finance team today.
Once you have your mortgage, pay it off quicker with Mortgage Genius.
The information and articles published on this website are true and accurate to the best of the Global Finance Services Ltd knowledge. The information given in articles on this website should not be substituted for financial advice. Financial advice should always be sought. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or their employees liable.