Time to fix loan on your house

The message to homeowners has gone out loud and clear in the wake of the first interest rate rise for nearly four years: fix your mortgage rate now.

Yesterday, Reserve Bank governor Graeme Wheeler raised the official cash rate (OCR) from 2.5 per cent to 2.75 per cent. As the OCR rises, banks increase their mortgage interest rates, hitting homeowners in the wallet.

Further rises are forecast over the next year.

Floating mortgage rates are now about 5.75 per cent, but could rise to 8 per cent or higher in the next couple of years if the Reserve Bank moves the official rate as much as expected.

A rise of one percentage point by the end of this year would add another $20 a week to mortgage payments for every $100,000 borrowed.

ANZ responded to the rise immediately by lifting its floating and flexible home loan rates to 5.99 per cent and 6.10 per cent respectively. It also increased the interest rate earned by savers on its main deposit product, Serious Saver, to 3.9 per cent.

Other banks had not followed suit yesterday, but sent clear signals they intended to do so soon.

Financial experts said it was time for homeowners to fix at least part of their mortgages, if they could afford to and had not already done so.

Scott Miller, of Advanced Mortgage Solutions, said borrowers had missed the bottom of the market, as fixed terms had been "pre- priced".

"Loads of clients have fixed, but if people haven't moved, they should move now."

Banks were only raising floating rates this time, Miller said. Fixed rates had already "drifted up", but would probably move again later in the year.

Broker Matt Gordon, of Select Mortgages, said despite plenty of warning, many clients had called yesterday wanting to fix loans. But any increases in repayments, even with floating rates, would be gradual.

"The headlines grab people more than the impact of the interest rates themselves," he said.

Harcourts chief executive Hayden Duncan did not expect higher interest rates to have much effect on Christchurch's housing market because of the shortage of homes.

"Until construction can keep up with demand, house prices are likely to remain high - despite interest rate hikes," he said.

Prime Minister John Key said homeowners would be hit in the pocket by the interest rate rise, but it was the result of a strong economy. "It's true we are the only developed country in the world that's currently raising interest rates, but that's because we are growing at a faster rate than most other countries around the world, and we've got a very robust outlook."

The OCR has been at an extreme low of 2.5 per cent since early 2009, apart from a small blip in 2010. Mortgage rates have been at their lowest for about 50 years.


Savers, such as term deposit holders. Interest on savings has hovered between 3.5 per cent and 4 per cent for several years. That will now rise, although the advantage will take several months to kick in.

People on fixed-rate mortgages. The fixed rate for two years of borrowing may be higher than a floating rate, but it will stay the same, however much interest rates rise.



People on floating mortgages. You may be getting a better rate than those on fixed terms right now, but as interest rates rise, so will your repayments.

First home buyers. Already hit by the loan-to-value restrictions, they now face having a much more expensive mortgage than they might have done a year ago.

The Press