Opinions are divided among commentators regarding the recent mortgage rate hikes, with some questioning the justifiability of these increases and suggesting that banks are using the opportunity to bolster their profits. But what can't be queried is that over the past ten days, all of the country's major five banks have raised their mortgage rates by up to 30 basis points, despite the Reserve Bank of New Zealand (RBNZ) signaling no further rate hikes.
ASB was the first bank to make significant changes, attributed the move to international factors rather than the official cash rate (OCR). However, some industry experts, such as John Bolton, founder of Squirrel mortgage broking firm, believe that banks are simply attempting to increase their margins. Bolton argues that the rise in one-year swap rates does not warrant the bank's 20 basis point increase in its one-year mortgage rate. Despite differing viewpoints, it is clear that mortgage rates are influenced by bond yields, swap rates, and global market conditions.
Some economists predict another OCR hike in November to curb inflation, others advocate for waiting to assess the impact of existing rate increases on the economy. Regardless, borrowers should expect elevated mortgage rates until international inflation subsides. The banking sector, driven by market conditions and profitability considerations, will continue to adjust rates accordingly, keeping an eye on property market dynamics.
Does all that financial mumbo jumbo leave you feeling bewildered?
You are not the only one! But that is where the team at Money Compare can help. If you have a home loan and your rates are changing, we have a real world example outlined below that will tell you just how much of an impact the rises in mortgage interest rates will have on your wallet.
Any fluctuation in interest rates can have a substantial impact on the repayment amount. Let's examine how a $500,000 New Zealand dollar home loan transitioning from a 2.49% to 6.49% interest rate would affect the monthly repayments.
For a 30-year loan term, the monthly repayment amount for a $500,000 home loan at 2.49% interest is approximately $2,181. However, if the interest rate rises to 6.49%, the monthly repayment amount would increase to around $3,344.
This means that the monthly repayments would surge by approximately $1,163, a significant difference for most homeowners. Over the loan's lifespan, this would result in an additional $418,680 paid in interest, almost matching the original loan amount.
To provide perspective, consider a scenario where a homeowner took out a $500,000 home loan at 2.49% interest and made monthly repayments of $2,181 over 30 years. In total, they would repay $785,160, including $285,160 in interest. If the interest rate escalated to 6.49%, the total repayment amount would increase to $1,203,440, with $703,440 paid in interest.
It's important to remember that these figures are estimations, and actual repayment amounts may vary based on specific loan terms and associated fees. Additionally, interest rates can fluctuate, necessitating homeowners to stay informed and anticipate potential repayment increases.
In conclusion, an increase in interest rates can significantly impact the repayment amount on a home loan. For a $500,000 New Zealand dollar loan, an interest rate increase from 2.49% to 6.49% would result in a monthly repayment rise of approximately $1,163 and an additional $418,680 paid in interest over the loan's duration. Homeowners should be mindful of potential interest rate fluctuations and take necessary steps to manage their finances effectively, such as evaluating their budget, exploring expense reduction strategies, or considering refinancing options to secure a lower interest rate.
Don't wait until it is too late - get in touch with one of our mortgage experts today - they will help you plan for the future to minimise any impact on your wallet.
Get in touch below.
