Refixing your mortgage rate might feel daunting, but like any decision that can impact your finances, it helps to be well-informed. Here are five important steps borrowers can take before locking in a new interest rate.
1. Know your fixed-rate expiry date
Most fixed-rate mortgages in New Zealand are fixed for a term ranging from 6 months to 5 years. It’s important to know when your fixed rate expires, as it will typically roll over onto a variable rate afterwards, and can lead to unpredictable effects on your mortgage costs.
If you’re unsure when your fixed rate expires, simply ask your mortgage provider. This will give you more time to assess your financial situation, explore your options, and make a more informed decision.
2. Check your goals align with your mortgage strategy
Refixing your mortgage rate is a key decision, so it helps to take some time and assess your financial situation. Some key questions you can ask yourself are:
- How stable are your sources of income?
- Do you have anything on the horizon that may impact your income, such as planned unpaid leave?
- Does your current (and potential next) term provide repayments that are in line with your budget?
- Do you have any new (or upcoming) financial commitments?
Your financial goals may have changed since you first took out your mortgage - perhaps you have paid off some debt, increased your income, or started a family. Once you understand your financial situation, check whether your mortgage strategy lines up with your financial goals. For instance, you may want to repay your mortgage faster or reduce your monthly repayments. Reassessing your financial situation will put you in a better position to pick an interest rate that aligns with your goals.
3. What interest rate options are available?
Mortgage providers offer a range of different interest rate options. One lender may better suit your financial situation than another, so don’t be afraid to check out your options. When refixing a mortgage rate, the most common types of interest rate you will find are:
- A new fixed interest rate: Locks your interest rate for another fixed term, providing more predictability and protection from rate increases.
- A variable interest rate: Also known as a floating interest rate, this rate can change over time - often in response to market conditions such as the Official Cash Rate.
- A blended rate: In some cases, you can combine fixed and variable rates (or multiple fixed rates), and decide how much of your loan is dedicated to each.
4. Understand your mortgage structure
Like interest rates, you have options on how you wish to structure your mortgage. Different mortgage structures can impact your set term, your approach to interest repayments, and more. Common options for your mortgage structure include:
- Table loan: Repay Over your set term (usually up to 30 years), most of your early repayments will cover the interest, while later repayments cover your principal (what you originally borrowed).
- Revolving credit mortgages: If used correctly, this structure can help reduce the amount of interest you pay, as it allows you to borrow and repay money as you need (up to a pre-approved limit). You’ll also only pay interest on the outstanding balance of your loan, rather than the entire credit limit.
Some lenders can also offer options and features which could reduce the interest you pay on your mortgage loan balance, such as an offset loan which allows you to balance your mortgage against nominated savings accounts. If you’re unsure about which structure or features best suit your financial goals, a financial adviser can talk you through your options.
5. Get in touch with a mortgage adviser
If you are considering refixing your mortgage rate, it’s important to research and be well-informed. A mortgage adviser can help assess your current situation, and objectives, and provide recommendations on an appropriate structure, with advice tailored for your needs.
By following these steps before refixing your mortgage rate in New Zealand, you'll be better equipped to make an informed decision that supports your financial goals.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.