One in three Kiwi households have mortgage debt and this figure remains fairly steady as more first home buyers enter the market. In addition to the cost of the property, there are also interest rates to consider. With over 40 years of experience in home loans and independent financial advice, Mortgage Masters can take you through the different interest rate options to keep in mind for your mortgage. Let’s review the pros and cons of fixed, variable and split interest rates.
Fixed Interest Rates
A lot of first home buyers opt for fixed interest rates when entering the market. That’s because they can lock in the rate upon settlement for one to seven years. Fixed interest rates don’t change like variable rates, making it easier for mortgage holders to plan their monthly repayments and budget accordingly. If fixed interest rates sound good to you, remember you can choose a fixed rate at any point during the loan term if you want to lock it in for up to seven years.
Variable Interest Rates
As the name suggests, home loans with variable interest rates may see the interest change over time. Also called a floating or adjustable rate, variable interest will fluctuate with national trends, but there’s no cap on early repayments like there is with fixed rates. Many lenders provide offset account options so you can use savings to reduce the amount of interest charged on your mortgage.
Split Interest Rates
For many Kiwis, the saying “best of both worlds” applies to split interest rates, where part of the loan is on a fixed rate and the other on a variable. This may be a good option for a home loan in a rising market, where instead of fixing a longer term rate for the entire mortgage, borrowers can wait for rates to drop once inflation is curbed. Split interest rates are one way to mitigate the loan repayment and manage the level of interest owed more effectively.
Final Thoughts: Fixed vs. Variable vs. Split Interest Rates
Everyone’s financial situation is different, and your decision on interest rates will depend on your level of comfort with fluctuating rates and your future financial outlook. If you know you will just make the minimum monthly repayments, a fixed interest rate may make more sense than if you hope to make as many early repayments as possible, in which case variable or split may be the way to go. Here are a few final pros and cons to consider for your next home loan.
- Fixed interest rates: rate rises won’t impact your interest rate so your repayments stay the same, but you won’t be able to pay off the loan early.
- Variable interest rates: you will have a wider selection of repayment and refinancing options; however payments will likely go up with an interest rate rise.
- Split interest rates: you get a mix of security and flexibility with a part fixed and part variable loan, but there may be more fees involved.
Connect with Auckland’s Trusted Mortgage Brokers & Financial Advisers
If you have more questions about home loans and which type of interest rate is best for you, Mortgage Masters can help. Please contact us today to discover all the New Zealand home loan options available to you.