Advice matters
Time to refix your mortgage?

To fix or to float? Whether you’re taking out a mortgage for the first time, or the fixed rate on your existing mortgage is due to expire soon, you may be pondering your next move.

So, where to next? Here are some key things to consider, according to our SHARE advisers.

What the current rates are, and where are they headed?

To start, it’s good to know what the current rates are, since they may have gone down since you last fixed your loan. At present, mortgage rates are at their lowest in years – and according to most economists, short-term fixed rates are likely to remain low in the near future.

On the other hand, as ASB’s economists recently pointed out, the improving economy may add pressure on the rates to rise.

What we’re seeing is that fixed long-term interest rates are already starting to increase. What does that mean for you? The answer depends on your unique financial circumstances, but generally speaking, it’s a good idea to factor in the possibility of rising rates, in a not-so-distant future.

“Borrowers are prudent to plan to deal with higher interest rate costs over the long run, rather than budget on rates remaining this low indefinitely,” ASB economists say. “And for those who want interest rate certainty now, the cost of fixing for longer terms, at below 3 per cent, is very low compared to the past.”

What’s important for you now: Certainty or flexibility?

Depending on your goals, what is more important to you – flexibility, or certainty of repayment amount for a while? A floating rate gives you more flexibility because you can make extra repayments or pay a lump sum without being charged an early repayment fee.

Meanwhile, with a fixed rate you get more certainty; you know exactly how much you’ll be paying for a set amount of time, and it’s easier to budget for it. However, you can only make extra repayments up to a certain limit before incurring an early repayment fee.

Are you planning to sell your house anytime soon?

If selling your house soon is on the cards for you, then a floating rate may be a better option until then. Floating rates are generally higher than fixed rates, but they give you the flexibility to sell without incurring a break fee.

However, even if your mortgage is on a fixed rate, and provided you remain with the same lender, you may be able to transfer your mortgage to your next property on existing rates.

 Doing so can save you time and money on all the paperwork, and you won’t have to pay an early repayment fee. Our SHARE advisers can help you find the most appropriate route for your mortgage journey: get in touch today.

So… to fix or not to fix?

If your fixed-rate period is about to end soon and you don’t refix it, then you would automatically be on a floating rate. If you’re expecting some bonus or additional income anytime soon, it might be better to wait and pay that lump sum towards your mortgage before refixing. The lump sum will help you reduce the principal portion of your mortgage, shave time off the mortgage term, and help reduce your interest costs over the long term.

On the other hand, if you decide to refix your mortgage rate, the next step is to consider how long to fix for. Of course, the answer depends on your unique circumstances: we can help you understand what’s involved.

And remember, refixing at a lower rate can be an opportunity to pay off your mortgage faster  without having to budget for it. By keeping your repayments at the same level as before, any extra money will pay down more of the principal with each payment you make. This way, you’ll be reducing the term of your loan faster – and pay less interest overall.

We’re here to help

Fixed or floating? How much can I actually save? Our SHARE advisers can help you answer these and other questions, and take advantage of the most competitive rates and terms on the market. Get in touch to learn more. 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 specific situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.