Refixing? Got Questions?
Over the next 12 months there are over $170b in home loans that will come off their fixed rate term, so there are a lot of clients out there seeking advice around what to do. Key points for people to consider before refixing their mortgage include a check-in on their financial goals, risk tolerance and knowledge around the current market conditions.
Some FAQs from our clients:
My fixed home loan rate is about to expire, what do I do?
In a high interest rate market, it’s always a good time to review your income, expenses as well as any anticipated changes to your financial position in the future to help you understand what you can afford. While a fixed rate will provide some stability in terms of assurance of repayments for a set period of time, it’s also important to consider what the market is doing, and to see what is being forecast in the short to mid-range future to help you make a more informed decision around how long to lock in for, if at all. If we are in a market where rates are expected to keep rising, then a longer term fixed rate may be the way to go, but if it is being predicted that rates will drop, then a short term option may be better.
At Flax Street, we will work with you to understand your financial position, before looking into the options available to you for your home via your lender/bank. We can assist with helping you refix your home loan with your existing lender, or we could look at the market to see who may be able to provide you with a better option via a refinance of your home loan. It’s also important to know that you may be able to book in your new rate up to 60 days out from your existing rate expiry. Our role is to work with our clients at this time to provide them with a market update and pricing (rates) and/or options to be discussed before locking in their next move.
How does the OCR affect interest rates?
When the RBNZ (Reserve Bank of NZ) increase the OCR (official cash rate) it becomes more expensive for banks to borrow money. The flow on effect for home owners is that banks may then need to increase their interest rates, which is what has been happening over the last 12mths. If you have a fixed rate, then you are only going to be impacted negatively by increases to the OCR when the time comes to refix your mortgage e.g. your interest rate will likely increase.Some FAQ’s from our clients:
What happens if I don’t refix before my expiry date?
If you don’t refix your rate before the expiry date, your interest rate will then defer to the current floating interest rate. You can still refix after this date, but until you do, you will be at the mercy of a floating interest rate that could go up or down at any stage and it is generally at a higher rate than the fixed rates on offer.
How will I know what my minimum repayments will be?
We will work with you to calculate your new repayment figures based on the rates provided to you. This will then help with your budgeting for repayments moving forward.
Should I be paying more than my minimum repayment?
Increasing your mortgage repayments can have several benefits, both in the short term and over the life of your loan. You can pay off your loan faster as you’re paying down the principal amount of your loan faster, which will in turn reduce the overall term of your loan. You will also reduce interest costs, as you’re paying down the principal balance faster. Most main banks will also let you pay down an additional 5% of your overall loan balance each year without penalty. If you want to pay down more than 5% of the balance, you may have to pay fee’s.
What do I do if I can’t meet the minimum repayments on my existing mortgage for a period of time?
The first step is to review your overall financial position, income and outgoings to better understand your expenses and your priorities. We do this for our clients, to help them make informed decisions for both the future of their loan and their family. Options could include interest only period, reviewing your loan term and also fixed payment amounts if paying above the minimum. From there, if it is still looking like our clients can’t meet the financial obligations of their mortgage, they can then contact their bank for more financial assistance. No matter what your situation, we are ready and available to help you review your options and make better financial decisions.