LOWER MORTGAGE RATES
What’s all the guff about Lower Mortgage Rates?
You may be aware the OCR was recently reduced to an all-time low of just 1.00% which has an effect on what retail mortgage rates are available to consumers. With the latest reduction, will we see much lower mortgage rates and more flexible lending criteria? There’s a good chance the answer is Yes!
In case you don’t know what the OCR is and how it affects us, here is a quick video from the Reserve Bank of New Zealand that will explain what the OCR does.
So, should you refinance?
Before you get excited and jump into what may appear to be an attractive mortgage rate, you still need to make your decision carefully.
If you are thinking about breaking a current fixed rate to move to another lender to get a much lower mortgage rate, give us a call so we can do the calculations for you to make sure it’s really worth it.
Does this mean you can now borrow more?
With a much lower mortgage rate, you would think that you can afford to borrow more, but that’s not always so. Banks use a few financial tools to assess whether you can borrow and if so, how much you could borrow.
When a bank assesses how much you can borrow, they don’t use the advertised mortgage rate to determine your eligibility.
By law the banks have to make sure you can afford your mortgage if interest rates go up, so to test your ability to repay the mortgage they may assess your affordability at an interest rate of 8% even if the rate you pay may 3.75%.
Banks don’t want to have a mortgagee sale. They know that everyone loses in such cases, so it is in your best interest to make sure you can afford your mortgage when rates go up.
Why use an INNOVEST Financial Adviser?
We know what banks use to assess affordability and each bank can be quite different. Bank A may lend you $700,000, while Bank B may lend you $800,000. That could make the difference of whether you can buy that home you really love, or not!
Keep it real!
Whatever you do, make sure you don’t overextend by ensuring you can afford your loan repayments. Also, make sure that your mortgage does not have longer-term consequences such as financial pressure in your relationships, or stress which can lead to health issues over the longer term.
It’s easy to lose perspective when you’re in the emotional throes of buying a new home, so it’s important to think about the whole picture and keep it real!
If you have any questions, need some free advice or a total financial assessment, call us today on 0508 466 683 (0508 INNOVEST).