In this article, you’ll learn how you can achieve the lowest interest rate with your bank and how you can save on your mortgage in the current market, with two simple strategies.
Many kiwis are currently coming off low fixed term interest rates and are about to refix at a rate 2-3 times higher due to New Zealand’s current economic situation.
If you’re reading this article, you’re most likely in the same boat. Naturally, you’re wanting to refix at the lowest interest rate possible, and may be concerned about the rising interest rates, what this means for your mortgage repayments, and your general cost of living.
Watch instead: How to get the lowest interest rates in high interest rate market
Unfortunately, bank interest rates and cash contributions are about the same currently, so there isn’t much benefit of switching banks for an insignificantly lower interest rate. Not to mention the legal fees, break fees, and repayment of cash contributions that could have you worse off financially than if you’d stayed!
Strategy One: Utilising the banks’ products for your specific situation
A couple of months ago I had a client that we set a mortgage up for. The client rang me up in a tizz because the floating interest rates had just gone up. He’d just had a letter from his bank saying that the floating interest rate was going up. He said “Jeff, I’m paying seven point something percent now, and this is really expensive. Don’t you think we need to now fix that loan or maybe consider changing banks or doing something because I don’t want to be paying seven point something percent.” My response was “slow down, take a breath, let’s do a little bit of maths and let’s see what your effective interest rate is.”
What’s an effective interest rate?
The effective interest rate is the usage rate that a borrower actually pays on a loan. As my client had an offset account which allowed him to deposit his salary and savings into the account and then offset this against the amount owing on his home loan, his effective interest rate was actually 0%.]
Now was his entire mortgage on 0%? No, it wasn’t. That was a portion of his mortgage as he had a couple of other loans as well. But if you look at these loans as a whole, you might say “well, I’m paying 0% on this loan. I’m paying 6% on these two loans over here. So on average, my overall interest rate is 5%.” That becomes a far more palatable interest rate and gives you peace of mind that on the whole, your overall interest rate isn’t too bad.
Like to hear more about offset loans and other banking products can help you? Book in for a free 15-minute chat with one of our Mortage experts.
Strategy Two: Have a proper debt reduction plan
The second, and possibly most important way to get a lower interest rate is to have a proper mortgage debt reduction plan in place.
A mortgage debt reduction plan reduces the amount of interest you’re paying on your mortgage and ensures you’re paying off your mortgage as quickly as possible, meaning that when high interest rates roll round again, the blow to your finances will be minimal, instead of catastrophic.
What is a mortgage debt reduction plan?
A mortgage debt reduction plan helps you pay off your mortgage far more quickly than your 25 or 30-year term. As a result, the amount of interest you pay on your loan becomes less and less.
Mortgage debt reduction is something Futurebound offers to all of our clients. First, we look at your home loan situation, we then analyse your situation and show you exactly how to, set up, structure and pay off your mortgage faster, leaving YOU in control of your mortgage – not the bank.
If you’d like a review of your situation and to get your own mortgage debt reduction plan underway, please book a free 15-min chat.
Keep in mind this article is providing general information and not individual financial advice.