Surprising to us at SMART that seventy-five per cent of Kiwi mortgages are either floating, or fixed for less than one year. The one year being offered is an attractive rate to the eye, however thought needs to be made on what sort of market you are then expiring into.
The “word on the street” is the official cash rate will start to increase, probably next month, it will hit people in the pocket quickly, with Banks expecting to increase interest rates by at least 2% over the next two years.
So what does this mean to you? For someone with a floating mortgage of $400,000 at 5.8%, now paying $1,300 a fortnight, could expect to be paying an extra $220 a fortnight in two years if they stick with the floating rate, which is expected to be nearly 8% then.
Looking at the 2 or 3 year fixedrates are seen as the most popular. It’s a good move for people who want some certainty.
That same $400,000 mortgage fixed now for three years would cost $1,364 a fortnight on a rate of 6.4%, just over $30 a week more than at a floating rate of 5.8% today, but more than $75 a week less than the expected floating rate by the end of next year, if it reaches the 8% as forecasted.
When your mortgage is up for renewal, have a think about what you want to achieve. Is it to pay the mortgage off quickly OR get an interest rate and time frame that suits your budget?