Geoff Bawden, of broking firm Moneyworkz and a former chairman of the New Zealand Mortgage Brokers Association, says that even where borrowers face early repayment charges of several thousands of dollars there may still be savings to be made by breaking a fixed rate.
Borrowers who have taken out fixed rates over the last 12 months or so may be locked into rates of more than 9% for well over a year. With rates of less than 8% available now it may pay to break the fixed rate, borrow the sum needed to pay the penalty charge and still save money.
Bawden is already seeing clients who are adopting such strategies.
However, Bawden cautioned that the savings were most likely to be achieved where borrowers were seeking mortgages with loan-to-value ratios of less than 80%. Others may not be able to achieve savings that justify breaking a fixed rate.
“People need, more than ever, to get advice about their options.”
Banks have become cautious about advancing mortgages that have loan-to-value ratios of more than 80% and several lenders are offering favourable rates on sub 80% mortgages.
As for the choice between a floating rate or a short-term fixed rate, Bawden said clients with loans coming up for refinancing now were tending to opt for floating rates, waiting to see how the market moves after the anticipated cut in the official cash rate (OCR) on December 4.
Lenders might not pass on the full cut in the OCR but there would still be reductions.
