More banks lift mortgage rates
ASB, ANZ and Kiwibank have all lifted mortgage rates after the Reserve Bank increased the official interest rate yesterday, but there's a silver lining for savers.
The Reserve Bank lifted Official Cash Rate from 2.5 per cent to 2.75 per cent, kicking off the first of what is expected to be a long run of increases over the next two years.
ANZ was the first bank to respond, lifting its floating and flexible-mortgage rates yesterday morning to 5.99 per cent and 6.10 per cent respectively.
Those rates take effect on Monday for new floating mortgages, and April 1 for new flexible-rate loans and all existing borrowers.
ASB followed suit last night, lifting its floating rates from 5.75 per cent to 6 per cent. It also bumped up its one-year fixed rate up 20 basis points to 5.69 per cent, and withdrew two longer-term "special" rates.
ASB's changes are effective today for new lending and from next Friday for its existing customers.
Kiwibank has been the next to move, announcing this morning that it would lift its floating and revolving-credit mortgages from 5.65 per cent to 5.9 per cent.
The changes kick in on Monday for new customers, and at the end of March for existing customers.
Economists warn floating mortgage rates, which have been held at around 5.75 per cent for more than three years, could rise to about 8 per cent by 2016.
With the majority of mortgage customers on either floating or short-term fixed rates, the increases will quickly hit borrowers in the pocket.
While the Reserve Bank's decision has a direct impact on floating rates, the fixed-rate market has already priced in the increases, which were signalled well in advance.
David Kneebone, executive director of the Commission for Financial Literacy and Retirement Income, said people with mortgages should start preparing for the higher rates now.
"Because mortgages involve repaying a lot of money over a lot of time, even slight increases in mortgage rates can add up to tens of thousands of dollars in the long haul," he said.
Sorted's mortgage repayment calculator shows that an increase of just 0.25 per cent on a 20-year $500,000 mortgage increases weekly repayments by $16.
A longer-term 2 percentage point rise in rates could add $28 a week for every $100,000 of debt, or nearly $1500 a year.
That means a borrower with a $500,000 mortgage would need to budget an extra $7500 for repayments each year.
On the brighter side, Kneebone said higher interest rates were good news for savers, such as retirees, who relied on interest income to live.
Kiwibank has increased all its term-deposit rates, from 30 days though to 150 days, by the full 25 basis points.
ANZ has also bumped up the interest rate earned by savers on its main deposit product, Serious Saver, by 25 basis points.
The bank's managing director of retail and business, Fred Ohlsson, said savers benefiting from the higher rates outnumbered borrowers five to one.