What are the cons of a fixed rate home loan?

PocketWise — Mon, 21 May 2018 00:15:43 +0000

A combination of attractive market conditions and greater budgeting certainty has seen more and more Kiwis taking out fixed rate home loans in recent years. While current rates are certainly making fixed mortgages appealing for first home buyers, it’s important to note that this type of loan is not without it’s downsides.

Here are three things to keep in mind when considering taking out a fixed rate home loan:

1. Restrictions on extra repayments

Most fixed rate home loans have restrictions and/or strong disincentives (such as expensive fees) in place to prevent you from making extra repayments on your mortgage. This means that your home loan could take longer to pay off than it would under a floating arrangement, and expose you to unnecessary interest.

2. Market rates could drop

Fluctuations in the Official Cash Rate (OCR) do not affect fixed rate home loans – and this is both a blessing and a curse. If the OCR increases, you don’t have to worry about repayment hikes and sudden financial stress. However, if the OCR decreases, the economic benefits do not trickle down to fixed rate home loan customers, which can be incredibly frustrating.

3. Break fees

Almost all fixed rate mortgage products come with large break fees. If you choose to sell your property or prematurely terminate the home loan agreement for some other reason, you’ll be forced to pay a substantial penalty. Be sure to check the fine print before signing anything!

There are many pros and cons to the various home loan products in New Zealand, and what’s right for one person may not necessarily be the best option for you. Hop over to our home loan comparison tool for more insight into current fixed rate home loan options and take the next step in the home owner journey.

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What are the pros of a fixed rate home loan?

PocketWise — Sun, 15 Apr 2018 21:15:19 +0000

Among the many questions you’ll face when taking out a home loan in New Zealand, one of the most important is: Should you fix or float?

A fixed home loan allows you to lock in your mortgage at a given rate for a certain amount of time (typically between six months and five years). The number of people taking out fixed mortgages has shot up considerably in recent years, largely thanks to the continued fall of the Official Cash Rate (OCR). Indeed, as the New Zealand Listener reported, recent figures show that more than 3 in 4 (76.5 per cent) mortgages are now fixed. In comparison, just three years ago floating home loans commanded 70 per cent of the market.

So, why exactly are so many people opting for fixed rate home loans?

1. Certainty

Because fixed rate home loans are locked into a certain rate, you know exactly what your repayments will be until the end of your agreement. This means no nasty surprises and no sudden payment hikes, making it substantially easier for you to set and stick to a budget.

2. Immunity to OCR changes

Fixed rate home loans are much more impervious to changes in the financial market than floating mortgages. For example, if the OCR rises, you can rest easy knowing that your repayments will remain exactly the same. Of course, this is a double-edged sword, but if you’re able to time it right it’s possible that a fixed home loan could help you save big in the long run.

3. Special deals

The fixed mortgage market is a highly competitive one, and banks often roll out special offers to entice customers. Be sure to regularly compare New Zealand home loan rates to snag a good deal when one pops up!

If you are not sure about whats right for you or you want help with getting the best deal for the banks, talk to one of our trusted advisers, they are always happy to help. Oh, and their service is free!

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