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Is it in your best interest?

On July 8th, ANZ, New Zealand’s biggest bank, dropped its home loan interest rates to the most competitive that they have been in recent times.

The move comes off the back of a historically low OCR (Official Cash Rate) as the Reserve Bank works to bolster the New Zealand economy in the post-Covid era.

What does this mean for interest rates in general? And what does it mean for people looking to buy?

We break it down in this month’s blog.

What difference does a low interest rate make?

Low interest rates are always a talking point because it means that you’re paying the bank less for your home loan. And a lower interest rate can make a big difference.

For example, a $300,000 30-year loan with 5% interest rate will see you paying $279,427 in interest – that’s almost double the loan. But at 2.5%, that interest amount drops to 126,365 over the 30-year loan period. You’re literally halving the amount you pay in interest.

Of course, most people won’t be looking at the impact of interest rates over 30 years because they’ll fluctuate over time. But lower interest rates certainly make a big difference in the short term.

Many people use the advantage of a low interest rate to keep their weekly or monthly payment the same and pay off more capital, so they clear their home loan more quickly.

Others will choose to lower the amount they pay in line with the reduced interest rate in order to give themselves more disposable income. This is a very helpful approach for people who may find themselves on a reduced income post Covid.

Is it a good time to buy?

There’s no denying that lower interest rates make buying property more appealing because your loan will be cheaper to service.

Currently house prices are well balanced considering the economic fallout from Covid and many first home buyers and investors are seeing this as a good opportunity to buy.

Only 2 months ago, ANZ economists predicted that house prices would fall by 10-15%. They’ve now reviewed that opinion saying that 5-10% and later in the year is a more likely scenario. (LINK https://www.interest.co.nz/property/106157/anz-economists-now-say-downturn-housing-market-will-come-later-end-year-and-next).

While this may not be such good news for buyers keen to hunt out a bargain, it’s a positive indication that our housing marketing is staying relatively stable. And, with the Covid recovery expected to take more than 2 years, interest rates will likely stay low for some time.

What do I need to think about?

Of course, it’s still important to be sensible and before you sign on the dotted line, we suggest you ask yourself the following questions:

Is my source of income stable?

If interest rates increase, will I still be able to service the loan?

Do I have an emergency fund in case we need to access money urgently?

It’s important to know that the mortgage is manageable on a day to day basis and also that you’ll be able to manage the mortgage if your financial situation changes.

Our home loan advisor and financial advisers can help with this to ensure you make an informed decision and know what you’re getting into.

If you’re looking at a property and could do with some advice, please get in touch with us. We can also help with getting you and your new property properly insured.