The rate stuff
To find the right mortgage for your needs at the best possible rate, there’s no substitute for doing your homework and shopping around. Here are four tips from an expert.
Mortgage interest rates – how low can they go? If you are looking to secure a mortgage, it’s never been a better time to arrange finance.
Lenders are already offering record-low interest rates, and it doesn’t seem they’re going to rise any time soon – particularly now that the Reserve Bank has cut the Official Cash Rate to a record-low 1.0 percent.
But while low interest rates have become the norm for home loan customers, there are still many variants you need to consider. So before you rush out to secure a great deal, check out these four expert tips.
Do your groundwork
“The main thing people need to do before applying for a mortgage is to behave in a way that the bank or lender is going to say, yep, you’re a good risk,” says Peter Norris, Mortgage Director at Squirrel, a top NZ mortgage brokerage.
“They need to have evidence they can save, are not missing loan payments or going into overdraft.”
For while the loan-to-value ratio restrictions have been relaxed, lenders are still thorough about understanding what customers can and can’t afford.
“It’s harder to borrow now than it’s been for as long as I can remember,” says Norris. “That’s because of the banks’ responsible lending codes. They’re not going to lend money unless you can prove that you can service the loan.”
If you’ve got your finances in order, you’ll already have a rough idea of the size of loan you can afford, but before you start drooling over a dream home, get your pre-approval in place.
“You need to know exactly what your budget is,” says Norris. “It’s important to have had that conversation with your adviser or lender and know that you’re in a position to start looking. I see it all the time – people go out, get emotionally involved with a property and then realise they can’t do it and become very disappointed.”
By getting your loan pre-approved, you’ll be in the position to make a definitive offer on a house, giving you a clear advantage over others not in the same position.
Not all mortgages are the same, and not all lenders, either. So it pays to compare the different products and get expert advice – not just walk through the door of your day-to-day bank.
“I know I’m a broker, and I would say this,” says Norris, “but we’re in a market where there are so many different things to look at, in terms of what banks are doing, what rates are doing and different bank policy.
“Borrowing money is difficult, so you need to have somebody who understands all of that and can match a mortgage to your individual situation.”
Aside from helping you achieve the best rates and structure, by comparing different lenders, you’ll also get a clearer picture of the incentives on offer, from cashbacks to discounted rates, and potentially even Fly Buys points.
“Cashbacks are great, and can cover things like legal fees, but if you’re getting an incentive from a bank, there’s generally a hook too,” says Norris. “For example, a couple of banks offering cashbacks tie you there for four years – if you leave early, you have to pay it back. So you need to be aware of what you’re getting into.”
Although interest rates are at historic lows, the flip-side means the only way is up. One dark cloud is the Reserve Bank’s proposal for the big four banks to bolster their capital by $20 billion, which could increase mortgage costs for customers.
It’s impossible to accurately predict what rates will do, or how your personal circumstances might change, but it is possible to hedge your bets.
“We’re in a downwards rate market, and we’re going to stay here for a long time,” says Norris.
“But my advice is to always split your mortgage across different fixed terms, plus a bit of floating. The fixed portion mitigates the risk of any rate fluctuations, while the floating bit offers you the chance to repay off chunks faster.”
Given the current conditions, it’s never been a better time to go house-hunting. There’s plenty of stock, prices have cooled and borrowing money has never been cheaper. If you do a little homework and talk to the experts, you can be sure that you’re paying for your purchase with the right mortgage at the best rate.