New Zealanders are using low interest rates to get ahead on their home loans, and it could save them tens of thousands of dollars over the life of their loans.
Kiwibank said 47 per cent of its home loan customers were now ahead, or were making more than minimum payments on a regular basis, on their mortgages.
“Over the past 12 months Kiwibank has reduced its variable interest rates by 1.75 per cent. Repayments were automatically kept the same allowing many of our customers to pay down their loans faster,” a spokeswoman said.
Reserve Bank data shows that an average standard new residential two-year fixed rate has dropped from 4.93 per cent in December 2018 to 3.5 per cent in December 2020 – and special rates are available around 2.5 per cent.
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Kiwibank’s statistic mirrors earlier data from Westpac, that showed that before the country went into lockdown last year, 65 per cent of that bank’s mortgage customers were ahead on their home loan repayments, by a median $8693.
Broker Glen McLeod said every client he dealt with who was refixing a mortgage was being encouraged to keep their repayments the same when they shifted to a lower rate, or to increase them when they could.
Most were choosing that option, he said, unless the Covid-19 lockdown had left them in a position where they were unable to afford to do so.
It would pay significant dividends, he said.
If someone fixed a 25-year $500,000 mortgage at a rate of 5 per cent five years ago, they would have been paying $1348 a fortnight.
If they had kept that repayment at the same level when interest rates fell to 2.5 per cent, they would be on track to pay off their loans five years faster and save just over $30,000 in interest. If they rounded it up to $1500 a fortnight they would save $42,000 in interest, he said.
About 60,000 people took a mortgage holiday offered in the response to the pandemic last year.
Banking expert Claire Matthews said while some of them would be behind where they would have been if they had not taken the payment deferral, it was not likely to be significant.
”It appears the numbers taking up the holiday were not substantial, so the numbers worse off as a result are unlikely to be large.
”The Kiwibank number is good news because it suggests many borrowers have taken advantage of the low interest rates to get ahead.”
Source: stuff.co.nz