Rush to fix home loan rates before Reserve Bank acts
Homeowners are scrambling to fix their mortgages in expectation of rising interest rates.
Wellington mortgage brokers have reported a rush of people trying to take advantage of lower rates while they can, as bankers and economists talk up the chances of rates going up.
Madeleine Richardson was one of them. This month the Hataitai resident and husband Matt broke a portion of the mortgage which was to mature in May, to set up a new one for two more years.
The Reserve Bank governor, Graeme Wheeler, held the official cash rate at its historic low of 2.5 per cent yesterday, but said an increase was on the way, possibly as early as March. As the cash rate rises, banks increase mortgage interest rates.
On a $300,000 mortgage at current interest rates, borrowers pay $808 a fortnight. If rates were to go up by 2.25 per cent, that would rise by $200 to $1016 a fortnight.
Anticipating the OCR rise, banks have already raised mortgage rates from an average of just under 6 per cent to about 6.4 per cent.
Richardson said she had considered a shift before Christmas after hearing about potential rate increases but decided against it.
"I nearly broke it just prior to Christmas - and I sort of kick myself for it. The day after that the banks put rates up."
The decision was an important one financially.
"We keep a fairly tight budget and the mortgage is quite a big part of our income . . . I managed to get the deal which was on offer before Christmas so I was quite happy with it."
The couple chose a two-year fixed mortgage on their villa so they had the flexibility to break it if they decided to move.
"The cost of breaking a five-year versus a two-year is quite a lot," she said.
Wellington broker Finlay Abbot had seen a definite upsurge in business.
"People are very keen to lock in a fixed rate now, and are wise to do so," he said.
"You could get 4.9 per cent in the months leading up to Christmas but all those chances are gone now."
Another broker, Sonya Reid, said people were worried.
"Some are breaking fixed loans early in order to fix them for a longer time to ensure budgeting certainty . . . others are quite anxious to fix floating loans."
Wheeler said the Reserve Bank was committed to raising the OCR in the near future to combat inflation.
"In this environment, there is a need to return interest rates to more normal levels."
The Dominion Post