Lower Mortgage Rates?
On Monday 12th August 2019 the OCR was reduced to only 1% which dictates what our retail mortgage rates are. With the latest reduction in the OCR will we see much lower mortgage rates and more flexible lending criteria?. Firstly, let’s take a look at what OCR means, and for those of you who are maybe more technically savvy than financially savvy, OCR in this case does not mean Optical Character Recognition, but rather the Offical Cash Rate! Here is a quick video from the Reserve Bank of New Zealand that will explain what the OCR does. And now that this is out of the way, what’s in it for you? and BTW, this is not a retail rate, so please no emails asking us to get you 1% (as much as we would love to get you that).
Should you refinance?
Before you get excited and jump into what may appear to be an attractive mortgage rate, there are still considerations to be made, especially if you are thinking about breaking a current fixed rate to move to another lender to get a much lower mortgage rate. You need to do the calculations to make sure it’s not a sideways move, or whether you would be much better at all. This is where a good adviser can work through the numbers with you to make sure it’s in your favour. Of course the bank wants new business, that’s how they make money, but do your homework first and contact us before you do anything.
Can you afford to borrow more?
With much lower mortgage you would think that you can afford to borrow more, but that’s not alway so. Banks use a few financial tools to assess whether you can borrow and if so, how much you could borrow. When you go to a bank (of course you would use a mortgage adviser) and they assess how much you could borrow, they don’t use the mortgage rate advertised to assess your eligibility. They want to make sure you can afford your mortgage if interest rates go back up so to test your ability to repay the mortgage, they may assess your affordability for example, using an interest rate of 8% even if the rate you may get 3.75% Banks don’t want to have a mortgagee sale and they know that everyone loses if it ever ended up there, so it is in your best interest to make sure you can still afford your mortgage when rates go up.
Why use a mortgage adviser?
The value of using a mortgage adviser is that we know what banks use to assess affordability and each bank can be quite different. For example, Bank A may say you could borrow $700,000 while Bank B may say $800,000 and that could make the difference of whether you can buy a home or not.
Don’t over extend
What ever you do, make sure you don’t over extend. Make sure you can afford your loan and we can help you with that, but also make sure that your mortgage does not have longer term consequences such as financial pressure in your relationships, stress which can lead to health issues over the longer term. The point is, think about the whole picture financially and keep everything in perspective. Don’t over extend which can easily be done when you are in the emotional throws of buying your first home. If you have any questions, need advice or a financial assessment, please contact us anytime.