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Which home loan rate is best?

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When it comes to home loans there are so many different options for rates. Do I go fixed, floating or interest only? Which option is best for my situation?

In this article, learn about the different home loan rates and which option may be best for you and your family and how to use these rates for your advantage.

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Interest Only Rates

The aim of the mortgage game is to pay off your owner-occupier home as quickly as possible, saving you hundreds of thousands of dollars in interest and unlocking further equity in your home. The only reason you should be on an interest-only rate (as opposed to paying both principal and interest and paying down your mortgage) is because you’re under financial duress and solely paying interest on your home loan will relieve some of the pressure. Most New Zealand banks only allow you to have an interest-only rate for one to two years, so keep in mind that interest only rates are a short-term solution.

Top Tip:

Prior to purchasing your new home, ensure that you haven’t bitten off more than you can chew regarding mortgage repayments. Have a decent deposit amount to put a dent in your mortgage and ensure you have good serviceability if home loan rates fluctuate.

Floating Rates

Floating loan rates allow you to pay off your mortgage as quickly as you’d like. You can pay your mortgage down as fast as you want, with no penalties involved.

Is there a downside to floating rates?

Floating interest rates are higher than fixed interest rates, so while you can pay your mortgage off a lot more quickly, you’ll be paying a bit more in interest. A floating interest rate also fluctuates depending on what the current market is doing so your rate may go up or down as interest rates in the wider market change.

A couple discussing home loan rates with their mortgage broker

Can I do a mixture of rates?

Absolutely! Putting most your mortgage on a fixed rate and then a portion onto floating can help you pay down your mortgage fast without having to worry about penalty fees. We can also anticipate how much you’re wanting to pay in addition over the course of a year, e.g. $20,000; and put that amounting onto floating, ensuring you’re only paying a floating interest rate on the amount you’re planning to pay back over the short-term.

If you’ve got a mortgage and are unsure if your rate is the best for your situation, we can have a look at it and can potentially structure it differently so you can feel confident that your mortgage is working the best it can for you, and not the other way around. 

Keep in mind this article is providing general information and not individual financial advice.