10 Top Holiday Season Money Saving Tips

Posted on December 14, 2023December 14, 2023 by mortgage_admin

It is almost that time of year again.

Sleigh bells will be ringing, the weather is warming (hopefully), and you’ll be shopping up a storm for pressies and ingredients for the family Christmas meal.

But, this Christmas might feel a little different to previous ones. Especially if you’ve just refixed your mortgage at a much higher interest rate.

So, we’ve been busy making a list of all the nice things you can do to save some money these holidays so that you can avoid Santa’s naughty finance list!

10 Holiday Season Money Saving Tips

1: Set A Budget

It is super easy to overspend at Christmastime once you start grabbing presents for the family, decorations and groceries. But you can avoid breaking the bank by setting a budget for what you will spend this December. It doesn’t mean you need to scrimp and save, but be realistic about what you can afford when choosing the number.

2: Go Digital

Christmas cards are lovely, but once you buy the card and the postage for multiple recipients, the costs can start to add up. So, why not go digital and send electronic cards this year? Or record a video message with the family to share around. Cost effective, but still super personal. Plus, you never have to worry about it getting lost in the post!

3: Shop The Sales

In the leadup to Christmas, there will be plenty of sales at all your favourite shops. So, keep an eye out for holiday sales, discount codes and promotions when shopping for your gifts. It pays to start shopping early so that you can catch any sales that are run, not panic buying whatever is left on Christmas Eve!

You can also look for ways to take advantage of discounts in your regular spending. Some utility providers or other services offer discounts if you pay on time or via direct debit.

4: Secret Santa

If you have a big family, the cost of gifts can soon add up. Instead of buying a gift for everyone, Secret Santa is a cool way to still have fun and keep the costs down. To do Secret Santa, put each family member’s name on a piece of paper and put it in a hat, then each draw out a name. That is the person you have to buy for.

If Secret Santa isn’t your jam, then you can kick the fun up a level and play Santa Grab instead. Everyone brings a small wrapped gift and they are placed in a pile. Everyone takes a turn to either unwrap a gift from the pile or to steal a gift someone else has already unwrapped. Proceed onwards until all guests end up with a gift to take home.

Not only are these games fun, but they significantly cut down the gift spend as you are only buying one present.

5: Homemade Gifts And Experiences

Who says you need to gift a store-bought present? Why not get creative with fun homemade gifts or offers of help? Bake cookies, crochet snugglies, pot plant cuttings, or offer to mow someone’s lawn once a month. There are plenty of ways you can give a lovely, thoughtful gift that costs very little.

You can also use recycled materials to wrap your gifts or go rustic with some brown paper and twine.

6: Meal Planning Or No Planning

When it comes to holiday food, you can plan as much or as little as you like. Setting a meal plan will stop you from buying unnecessary groceries, minimising overspending.

Or, throw the plan out the window completely and ask your guests to simply bring a dish with them. The surprise of what kind of food you will receive is part of the fun!

Remember that you don’t have to invest in fancy treats either, you can make or bake your own budget friendly options that will probably taste better anyway!

7: Minimise Travel

Christmas Day can be hectic when you are trying to visit multiple households. Take a step back and look at what you could do to minimise the travel. Could you all meet somewhere central for a blended Christmas celebration? Or maybe visit one relative this year and save the others for next year, taking turn about.

Flights are notoriously expensive over the holiday period, as is accommodation. Perhaps you could plan to have a small family Christmas at home and then visit your relatives for a mid-winter Christmas to save on travel costs.

8: Cut Discretionary Spending

Take a look at your monthly expenses to see if there is anything you can trim over the holidays. For example, if you are a rugby fan, you might be able to pause any Sports subscriptions until the season starts again, or pause other services you won’t be using over the summer.

If you have family coming to stay, look at ways you can share expenses so that no one person has to cover the cost of everything.

9: Put Money In

Look for ways that you can inject money into your budget, rather than taking things out. You could potentially sell unwanted items or things from your garden, rent a room if you have extra space, or even Air BnB out your house if you are going to be on a summer holiday.

10: Examine Your Mortgage

One of the biggest holiday expenses you are likely to have will be your mortgage repayments. So, it’s worth exploring whether or not you can save some money there. The best way to do this is to have a chat with a mortgage broker, like the trustworthy team here at Mortgage Suite.

We can explore all the different options available, like refinancing, securing a different interest rate, restructuring your borrowing, or switching lenders. Any of these options could potentially create savings for you.

So, why not get in touch with our team now for an obligation-free chat? Book a time to speak with us now.

Are Interest Only Loans A Way To Save Money On Your Mortgage?

Posted on November 13, 2023March 27, 2024 by mortgage_admin

As we all watch mortgage rates climb higher still, you’d be forgiven for trying to find ways to save some money each month.

There is only so far budgeting and cutting out luxuries will get you.

Sometimes, you might feel like a more drastic saving plan is needed.

Part of that exploration might include looking for ways you can save on your mortgage. Recently, we’ve had some queries about interest only loans so thought we’d provide greater detail about what they are along with some ways you might be able to save money on your mortgage.

What Is An Interest Only Loan?

Well, kind of like the name sounds, an interest only loan is a type of mortgage where you only make payments towards the interest portion of your home loan. You don’t make any repayments towards the principal portion of the loan. For this reason, interest only loans are for a fixed term and are usually approved for no longer than five years.

They also carry a large number of restrictions due to the intensified risk of debt and house prices in the current market. That means lenders need a really justified reason for allowing interest only lending right now, and some don’t even offer it

Can You Save Money With An Interest Only Loan?

So, can this type of loan save you money?

Well, it might seem like they are an option to reduce costs in the short term as the actual payment amounts will be lower. However, you will actually end up paying more in the long term as the interest is always calculated based on the principal amount of the loan. So, because the principal is not reducing as it would in a standard mortgage repayment, you will end up paying more interest over the term of the loan.

Usually, an interest only loan is more suited for property investors who may be able to claim some of the interest as a tax deduction. But, they can also be beneficial for first home buyers who are looking to make the first year of repayments more manageable or homeowners who are looking to sell their property soon.

Other Ways To Save On Your Mortgage

If an interest only loan is not necessarily the answer, what other ways are there to potentially save on your mortgage costs? Well, here are some suggestions:

Talk to the Experts

The first piece of advice we can offer is to talk with a respected mortgage broker like the team here at Mortgage Suite. That way, we can give you tailored advice based on your individual financial situation. This includes chatting about your current mortgage (if you have one) and what your future plans entail. Then, we can give you informed advice about the best options for you and your family.

Shop Around

Sometimes a different lender might be able to provide you with a different rate or a better incentive than your current lender. So, it pays to shop around to see what kind of deal you can get. A mortgage broker can help you do this and can also recommend the best potential option for your individual needs.

Negotiate

There is no rule to say you need to take the first interest rate offer you are given! You can try to negotiate a better rate or have your mortgage broker negotiate on your behalf. Often, if you have a good credit rating and strong financial history you may be able to secure a better deal.

Fixed or Floating

As we’ve discussed in the past, there are merits and drawbacks for both floating and fixed options. Fixed mortgage rates give you consistency and certainty about what your repayments will be, this can help you to budget better. However, floating rates can work if you have a variable income where you might be able to put more of your mortgage some months or if you want to capitalise on any changes in the market.

Loan Structure

The structure of your loan can sometimes be modified to create a better deal for your current situation. That can include modifying the term of it, splitting it into different portions with different interest rates, or even splitting some between fixed and floating rates.

There is not one set structure that suits everyone, so have a chat with your mortgage broker about what might be the best option for you.

Use Offset Accounts

Some lenders offer offset accounts as part of your mortgage package. Basically, any money you have in those accounts is offset against your mortgage balance which can reduce the amount of interest you need to pay. Double check with your bank if this could be an option for you.

Be Mindful Of Fees

Make sure you are aware of any fees associated with your mortgage and try to minimise incurring any. Some lenders will charge a fee if you make additional repayments or if you break a fixed term rate. There can also be penalties if you miss a payment, so it always pays to be proactive and contact your bank if you think you won’t be able to pay on time.

Regularly Review

Take the time to periodically review your budget and financial goals. Then, chat with your mortgage broker to ensure that they are in line with your current mortgage structure and adjust your strategy if your income, expenses or personal circumstances have changed.

Could You Be Saving Money?

The Reserve Bank is predicting that pockets of household financial stress are likely to grow in the medium term due to rising debt servicing burdens. Loan arrears have been steadily increasing in the past year, but most households have been able to manage to date by cutting discretionary spending.

What is noticeable though, is that mortgage holders have been missing repayments on other debt at a greater rate, suggesting that there are debt servicing strains out there. [source]

So, it is only natural that mortgage holders might be seeking ways to save money as 2023 comes to a close. If that sounds like you, then we’d love the opportunity to chat about how we might be able to help. Get in touch with the Mortgage Suite team today for an obligation free discussion about what 2024 could look like for your mortgage.

The Tricky Job of Reducing Inflation

Posted on October 16, 2023October 16, 2023 by mortgage_admin

It’s common knowledge that inflation has been too high for too long in NZ.

And we’ve heard all the experts telling us that it’s a really bad thing.

But, why is that?

How does inflation have a vice-like grip on our economy right now and why has it not gone down despite interest rates sky rocketing and households feeling the pinch?

Well, let’s look at that question now and explore how tricky the job of reducing inflation seems to be.

Why Is It Bad To Have High Inflation?

In New Zealand, the target inflation rate is between 1 – 3%. As of October 2023, the current inflation rate is sitting around 6%. Clearly, we are quite far away from the target window.

So, why is it such a bad thing for inflation to be high?

Well, there are a number of reasons why we can see the Reserve Bank working so hard to bring the rate down. These are a few of the main ones:

Reduced purchasing power

High inflation takes away some of the purchasing power of our dollar. If prices continue to rise month on month, like we’ve seen recently, people find it increasingly difficult to afford the same amount of goods. Effectively, the money you earn will buy less than what it did before. This can reduce your standard of living and quality of life.

Economic uncertainty

It’s not only individuals that are impacted, businesses also feel the pinch because high inflation leads to economic uncertainty. Consumers have less money to spend, so they delay making purchases other than essential items.

It is hard for businesses to operate under these conditions as they need people to buy their products in order to keep the doors open! When businesses have fewer people spending with them, they can’t plan for the future as they don’t know when the funds will roll in again. This results in economic instability for the whole country.

Higher interest rates

High interest rates are at the front of every mortgage holder’s mind. When inflation is high, the Reserve Bank tries to combat that by raising the OCR. As we’ve learned in the past, the OCR is one of the main considerations for setting mortgage rates. When the OCR goes up, so do interest rates.

Higher interest rates can deter borrowing and spending as everyone is focused on having enough money available to keep a roof over their heads. This lack of money circulation negatively impacts the country’s economic growth and makes businesses hesitant to hire more people.

Basically, there is less money circulating through communities as everyone is prioritising servicing their mortgage. Around these times, you might see your favourite small businesses closing as it is no longer financially viable to stay open with people spending less.

Why Is It Taking So Long For Inflation To Come Down?

Now we know why high inflation is a bad thing and why the government and the Reserve Bank are working hard on reducing inflation. But, why is it taking so long?

Reducing inflation at any speed relies on:

Economic conditions: Inflation reflects supply and demand dynamics. If demand is high and supply is low, it can take longer for inflation to come down. We are seeing this in the marketplace as consumer spending is still high, partly as a result of migration increasing in the aftermath of Covid restrictions lifting.
Monetary policy: As we know, the Reserve Bank are doing their part to reduce inflation by raising the OCR. However, it takes time for those changes to have an impact. Because many NZ mortgages are on fixed term rates, the pain of increased mortgage rates can only be felt when those fixed terms expire and a new interest rate must be fixed.
Expectations: Inflation expectations can impact the rate at which inflation reduces. If people expect inflation to persist, they may request higher wages. When businesses pay more wages, the cost of goods has to remain high to cover these costs. Suddenly, you have created a self-fufilling cycle of inflation. Only when the expectations change can inflation be reduced.

How Long Will This Current Situation Last?

Economists are confident that the high inflation war can be won. But, it’s not something that will happen overnight. As we know, the OCR remains at 5.5% after the Monetary Policy Committee chose not to increase it on 4th October. This is because interest rates seem to be constraining economic activity and are starting to reduce inflationary pressure as required [source].

However, we aren’t out of the woods just yet. “Kiwibank says the RBNZ’s plan is simple: lift interest rates to a point where they hurt, and hurt a lot, and then wait for inflation to be stifled and restrained to something more stable, like 2%.” [source].

With inflation currently around 6% we have a long way to go. “To tame the prickly inflation beast, monetary policy needs to be left at restrictive levels, for longer. The RBNZ notes ‘a prolonged period of subdued activity is required to reduce inflationary pressure,’ says Jarrod Kerr, Kiwibank economist [source].

The good news is that the probability of further OCR hikes has reduced. It might be that the Reserve Bank has done enough to date to turn the tables on inflation. If all goes according to plan, inflation will reduce in the coming months and they can look to move the OCR down with more favourable borrowing conditions appearing in late 2024 or 2025.

However, this will depend on whether a further OCR hike happens in the upcoming 29 November 2023 review. So, at this stage, we will await that announcement before making further predictions.

Our Advice

In this uncertain market, it is still our recommendation to seek advice from an experienced mortgage broker before making any decisions about your current mortgage or any potential borrowing.

Here at Mortgage Suite, we specialise in giving personalised financial advice tailored to your individual situation and the current circumstances in the mortgage market. We’d love to have the opportunity to discuss your mortgage needs as we might be able to create a better structure for your current situation.

Chat with our team to find out if that’s the case now.

How Long Should I Fix My Mortgage For?

Posted on September 12, 2023September 12, 2023 by mortgage_admin

Why Do Mortgage Rates Keep Going Up?

If you’ve been keeping on top of the announcements by the Reserve Bank, you’ll know that the Official Cash Rate (OCR) has remained at 5.5% since 24th May 2023. And as we’ve previously learned, the OCR is a large player in dictating how interest rates will be set.

So, if the cash rate hasn’t moved since May, why do mortgage rates keep increasing?

Well, a lot of it is down to the cost of doing business. BNZ has quoted, “The cost of funding, which is predominantly determined by the rates banks can borrow overseas, has been increasing and this increase is being passed through to interest rates.” [source]

This sentiment has been echoed by the other main banks in NZ, with collective statements insinuating that “the OCR was a big driver of interest rates but there were other things that played into it, including what banks were paying depositors, as well as international markets and swap rates.” [source]

However, with the cost of living continuing to climb and banks recording record profits, is it fair to continue pushing mortgage rates up? Some economists think it isn’t and are calling for banks to reduce their interest rates. We’ll have to watch this space to see if their recommendations are taken on board by the big four banks!

What Options Are There?

As we’ve previously discussed, you have two main options for repaying your mortgage. You can lock in a fixed interest rate or you can choose a floating rate.

These are the most common options available to borrowers:

Floating

If you like the flexibility of making lump sum payments on your mortgage or you are happy to ride the wave of fluctuating interest rates in case it changes in the borrower’s favour, then a floating interest rate could be the right option for you.

Floating rates are traditionally the highest of all mortgage rates, but you aren’t locked in at a set rate so you can sometimes capitalise on interest rate reductions. As of 11 September 2023, current floating rates are sitting around 8.00%.

Fixed

If you prefer the security of knowing what your repayments are going to be each month, then a fixed term interest rate is for you. These are the most popular terms banks offer:

6 months
1 year
18 months
2 years
3 years
4 years
5 years

Depending on the market, your current situation and future plans, any one of these fixed term options could be the right choice for your family.

How Long Should I Fix My Mortgage For?

As we have already mentioned, choosing to fix your mortgage allows you to budget and plan with set repayment rates. This is attractive for many families as they know what to expect each month.

So, if you do choose to fix, how long should you fix for?

One year mortgage rates have always been the most popular term as it is long enough to budget for, but not so long that you might miss potential savings should rates decrease. However, two year rates have been rising in popularity recently, and three year rates are becoming less attractive to borrowers.

As always, four and five year fixed terms will get you the best rate in the current market. Though it is not always wise to fix for that long when rates are as high as they are currently. It could mean you get locked in at a premium rate and pay more than you need to if rates drop within your fixed term.

Unfortunately, there is no one fixed term that will suit every family. So, it is recommended that you discuss your options with a mortgage broker, especially in the current climate.

Will The Rates Go Up Or Down in 2024?

Last month, economists were predicting that mortgage rates would begin to decrease in 2024. Yet now, they are not so sure. With a deficit in the government’s numbers and global markets feeling the pressure, those decreases may not happen as soon as we’d hoped.

It is thought that “the deficit blowout could cause a bit of upward pressure on interest rates”. Plus, we also have to factor in “worries about inflation next year in the United States.” The USA’s economy has a big impact on how wholesale interest rates are set. [source]

At this point, the direction in which interest rates will move is uncertain. It may become clearer after the election takes place in October. So, in the meantime, we recommend that you seek expert advice from a mortgage broker before making any final decisions.

Why Use A Mortgage Broker?

Why do we recommend that you chat with a mortgage broker? Well, as trusted financial advisors, mortgage brokers, like the team here at Mortgage Suite, live and breathe the mortgage market on a daily basis. That means we understand the market intricately and can make objective recommendations based on your circumstances and the current market conditions.

It’s natural to worry about your mortgage right now, but we want to take that worry away. So, chat with our team today to see what options are available to you in terms of mortgage rates and terms. Contact us now.

What Is Inflation And Why Does It Push Interest Rates Up?

Posted on August 14, 2023August 16, 2023 by mortgage_admin

We have heard an awful lot about inflation in the last few months.

But what exactly is it and why is it having such a big impact on mortgage rates?

We’ll explore that questions and what’s been happening in the world of finances now…

What Is Inflation?

We’ve all heard the word inflation before, and know that it can have a big impact on the general economy. But, what is inflation actually?

Well, inflation refers to the general increase in the prices of goods and services within an economy over a period of time. When inflation rises, each unit of currency buys fewer goods and services than it did before. In other words, the purchasing power of money decreases.

Inflation is typically measured as an annual percentage rate, calculated by considering the percentage increase in the average price of certain goods and services over a specific time period. The Reserve Bank closely monitors inflation because it significantly impacts the economy.

Sustained high inflation can put the country’s currency and financial system at risk. This is why The Reserve Bank and policymakers aim to maintain stable and moderate levels of inflation to support a healthy economy.

How Does Inflation Impact The OCR?

As we’ve already learned in previous months, the OCR has a flow on effect when it comes to setting mortgage rates. You can read more about that here. But, if we take a step back from that, inflation is one of the factors that the Reserve Bank consider when setting the OCR.

Here’s how it can have an impact:

Targeting

The Reserve Bank operates under an inflation targeting framework. This means they set a specific target range for the inflation rate and adjusts their monetary policy tools, including the OCR, to achieve that target. In New Zealand, the target range for inflation is typically around 1-3%.

Rising OCR

If the Reserve Bank observes that inflation is rising and is projected to exceed the target range, it might respond by raising the OCR. By increasing the OCR, the RBNZ makes borrowing more expensive for commercial banks, which can lead to higher lending rates for consumers and businesses.

In theory, this will reduce spending and borrowing in the economy, helping to slow down demand and moderate inflationary pressures.

Falling OCR

On the other hand, if inflation is below the target range or if there are other economic factors causing a slowdown, the Reserve Bank might lower the OCR. Lowering it makes borrowing cheaper, encouraging consumers and businesses to spend and invest more. This increased economic activity can help boost demand and bring inflation closer to the target range.

Expectation

Decisions regarding the OCR also depend on inflation expectations. If people and businesses expect inflation to increase, they might adjust their behaviour, such as raising prices or negotiating higher wages. These actions can contribute to higher inflation. The RBNZ takes these expectations into account when setting the OCR.

Economic Conditions

In addition to inflation, the OCR also takes into consideration other economic conditions, such as employment levels, economic growth, and global economic factors. These conditions can influence the Reserve Bank’s decisions about whether to raise, lower, or maintain the OCR.

Inflation + OCR

Overall, the relationship between inflation and the official cash rate is based on the Reserve Bank’s goal of maintaining price stability and ensuring that inflation remains within the target range. The OCR is a key tool used to achieve this objective by influencing borrowing costs, spending, and investment in the economy.

As we know, the OCR is a big driving factor in determining mortgage rates. So, that is how inflation is having a big impact on the current interest rates.

What’s Been Happening?

Inflation Watch

Now that we know a bit more about inflation and how it can impact our economy, have the Reserve Bank’s actions had the desired effect so far?

Unfortunately, inflation still remains stubbornly high at 6% and Westpac economists expect it to remain elevated over the coming year. That will mean continued pressure on household budgets. The Reserve Bank had paused its monetary tightening policy, but a final OCR rise could potentially be on the cards later in the year.

For all of us trying to buy groceries and pay our mortgages, this isn’t necessarily good news. But, only time will tell when it comes to mortgage rates. With uncertainty in the market, it is always advised to speak with an expert mortgage adviser before making any decisions regarding your mortgage.

Housing Market

Experts predict we may be nearing the bottom of the housing market with the rate of decline dropping for the fourth month straight.

“The QV House Price Index for July shows the average home dropped in value by 1.5% nationally over the July quarter, which is a smaller rate of decline than the 1.8% in June, and considerably lower than the 3.5% and 3.4% quarterly declines in April and May respectively. The national average now sits at $888,999. That figure is now 10.2% less than the same time last year, but just 0.3% lower than at the end of June” [source].

What does that mean? Well, house prices may start to even out soon. So, it is wise to take expert advice before making any moves in the property market.

OCR Forecast

Economists are forecasting that the OCR will remain high into 2025, potentially sitting around the 4% mark. This is due in large part to increased immigration numbers after Covid.

It’s predicted that the economy will “flirt with negative growth between now and 2024… Gareth Kiernan, Infometrics chief forecaster, says be it a continued slowdown, a double-dip recession, or any other description, the economy is still going to look and feel weaker throughout the rest of this year and into the next.

That’s the price we’re paying to get inflation under control and put the New Zealand economy on a more sustainable path.” At least he says, the country is now seeing the effects of the tightening in monetary conditions coming through.”

While this does not promise short term relief from mortgage rates, we are starting to see signs that the OCR hikes are having the desired effect. So, it will be about weathering the storm in the coming year, and we can help you do that here at Mortgage Suite with expert financial advice.

Contact our team today with any questions you have about your mortgage or current rates.

The Value Of A Mortgage Adviser In Hard Times

Posted on July 13, 2023July 13, 2023 by mortgage_admin

It’s no secret that times are tough right now. Most families are really feeling the pinch with living costs dramatically rising in the last year.

And, don’t get us started on the interest rates!

In tough times, it is important to lean on the knowledge of experts. Right now, a mortgage advisor is one of the best experts you can engage.

Why is that? Read on to find out the answer and to see what is currently going on in the world of finance.

The Value Of A Mortgage Adviser In Hard Times

When the economy feels like it is in freefall, interest rates are up, and a lettuce costs more than $6 at the supermarket, it can be hard to stomach. That’s where the support and advice of an expert can be a welcome relief.

Here’s how a Mortgage Adviser can help during tough economic times:

Financial Assessment

A mortgage adviser can help you assess your current financial situation, taking into account any changes or challenges brought about by economic conditions. They can review your income, expenses, and existing debts to determine the feasibility of obtaining or maintaining a mortgage.

They can then provide informed advice about ways you might be able to save in some areas to ease the pressure you are feeling.

Mortgage Options

An adviser can provide an overview of the mortgage options available to you in the current economic climate, whether you are seeking advice on new lending or your existing mortgage. They can explain the various types of mortgages available, the impact of current interest rates, and the terms of each lending option, plus help you understand which is most suitable for your circumstances.

Market Knowledge

A key part of a mortgage adviser’s job is to stay updated on the local real estate market and economic trends. They can provide insights into market conditions, property values, and mortgage lending practices during all economic times. This knowledge can help you make informed decisions regarding buying, selling, or refinancing property.

Budgeting and Affordability

During challenging economic periods, it’s essential to create a realistic budget and assess the affordability of your current mortgage or any future borrowing. A mortgage adviser can help you evaluate your income, expenses, and mortgage repayments, taking into account potential fluctuations in income or interest rates.

By having a total understanding of your financial commitments, they can provide informed advice tailored to your personal situation. That will result in a budget that aligns with your financial situation and long term goals.

Negotiation and Support

When negotiating mortgage terms or dealing with financial institutions, having a knowledgeable adviser on your side can be advantageous. They can help negotiate interest rates for new or existing lending, loan terms, and repayment options on your behalf, ensuring you secure the best possible deal for your personal circumstances.

Risk Mitigation

Tough economic times often bring uncertainties and risks when it comes to your mortgage and other finances. A mortgage adviser can help you understand the potential risks associated with your mortgage, such as changes in interest rates or job security.

They can assist in developing risk management strategies, such as exploring fixed-rate mortgages or different loan structures to provide stability and peace of mind.

Call In the Experts

As you can see, there are plenty of benefits to working with a mortgage adviser, regardless of what the economy is doing. But, it is important that you work with one that you can trust.

The team here at Mortgage Suite would love the opportunity to advise and support you on any lending decisions. Whether your fixed term rate is coming up for renewal, you are having trouble with your current repayments, or you’d like to explore new lending options, we are here to help.

Chat with our team today!

What’s Happening In July?

OCR On Hold

As suspected by many financial experts, the Reserve Bank announced on 12th July that the OCR would be held at the current rate of 5.5% and expects to keep it at that level for some time.

So, what does it mean for mortgage rates?

Well, we are unlikely to see much change this year. However, predictions are that rate cuts could be seen as soon as the first quarter of 2024. “Barclays expects 25 basis point cuts at all the meetings in the first six months of 2024, with the cash rate reaching 4.75% by May 2024. [source]”

“ASB is expecting inflation to fall back into the 1-3% target band in the second half of 2024, fairly similar to the RBNZ’s view. [source]” “Corelogic suggests mortgage rates appear to be at a generalised peak, and this will allow households to quantify their ‘worst case’, with some starting to make property decisions again. [source]”

Again, it is a case of watch this space about the specifics, but based on the current information, it seems interest rates shouldn’t go much higher than they currently are. As always, we would definitely recommend consulting an expert financial adviser before making any moves when borrowing or refixing. Reach out to our team for helpful advice at any time.

The Item We Won’t Compromise On

There’s no denying that most families are tightening the belt on their finances and discretionary spending. But, there is one thing that we Kiwis are not prepared to let go of just yet.

And that is a well-brewed cup of coffee!

Households are not spending on the big items currently, but they are willing to spend on the smaller things in life. Spending at cafes, restaurants and bars lifted by 4% over the June quarter. So, if you still stop in for the occasional barista-brewed cup of joe, you are not alone!

Get in touch with the Mortgage Suite team now if you’d like to work out whether you could fit more coffees into your budget!

When Should You Use Fixed Mortgage Rates?

Posted on June 14, 2023June 14, 2023 by mortgage_admin

For the last few years, there has been a lot of talk about fixed mortgage rates.

First, they were super low. Now, they are peaking at rates that are unsustainable for some households.

So, let’s explore fixed mortgage rates in greater detail. What are they, why should you choose them, and when should you use them?

You’ll find the answers to all those questions in this article, along with a quick update on what is happening in the financial markets mid-2023.

What Are Fixed Mortgage Rates?

A fixed mortgage rate refers to a mortgage loan where the interest rate remains fixed or locked in for a specified period, typically ranging from 1 to 5 years. During this fixed period, the interest rate and monthly mortgage payments remain the same.

We previously discussed how banks set their fixed mortgage rates and you can read about that here. Rates offered may vary between lenders, so it’s advisable to take advice from a mortgage broker to find the most competitive rate for your circumstances.

Fixed rates provide financial consistency to borrowers, but it’s important to note that this kind of lending may be subject to break fees or early repayment penalties. This can happen if you decide to make changes to the loan, such as paying off some (or all) of the mortgage before the fixed term ends or if you want to refinance.

For those reasons, it’s recommended to carefully review the terms and conditions of any mortgage agreement and seek professional advice before committing to a fixed rate mortgage.

Why Should You Fix?

There are several reasons why you might choose a fixed term mortgage rate. Some of the main ones are:

Predictability and stability: With a fixed mortgage rate, your interest rate and monthly payments remain the same for the duration of the fixed term. This provides stability and predictability in your budgeting since you know exactly how much you need to pay each week, fortnight or month.
Protection against interest rate fluctuations: By choosing a fixed rate, you shield yourself from potential increases in interest rates during the fixed term. If interest rates rise, your fixed rate remains unaffected, allowing you to maintain the same level of repayment.
Planning and financial security: A fixed mortgage rate allows you to plan your finances with more certainty, making it easier to budget and manage your monthly expenses. This can be particularly beneficial if you want to avoid any nasty surprises that may come with variable interest rates.
Peace of mind: For borrowers who value peace of mind and prefer a level of financial security, a fixed mortgage rate can provide reassurance and reduce the stress associated with potential interest rate fluctuations.

When Should You Fix?

As you can see, there are plenty of benefits to having a fixed rate for your home loan. However, there are also some things to be mindful of. You can benefit from having your mortgage fixed if interest rates continue to climb. However, if interest rates are expected to lower, then fixing your home loan at a peak rate is not a good idea.

This all makes perfect sense, right? But how do you know when rates are going to climb or when they might decrease? Well, the best thing to do is seek advice from an expert who regularly works in the financial market – a trusted mortgage broker. They monitor what is happening in the market and can usually make fairly accurate predictions on what interest rates are going to do.

In the current market, the Reserve Bank has indicated that its monetary tightening period is at an end and the OCR is on hold. That means that future adjustments to the OCR should be cuts rather than increases. So, it is not advised to jump on long term fixed rates simply because they are the lowest on offer in this moment.

In theory, if the OCR decreases in the second half of 2024 as predicted, then mortgage rates should also decrease. And you don’t want to have your mortgage fixed at a 5 year term on a rate that was set at the peak of the OCR. Infometrics chief forecaster, Gareth Kiernan advises, “If this is the peak in mortgage rates, it might be the last point in time to be fixing a mortgage for too long.” [source]

If your mortgage rates are about to come up for renewal, then it’s time to seek advice about your next move. Chat with the team at Mortgage Suite now for mortgage advice you can trust.

What’s Been Happening This Month?

Mortgages Are Down

The data is in and new mortgage lending is down 23% on April last year and 45% on April 2021. Clearly, the Reserve Bank’s goal to impact monetary policy with changes to the OCR has had a clear impact on people’s borrowing power and appetite.

LVR Restrictions Eased

As of 1st June, the Reserve Bank has eased its loan-to-valuation restrictions. This has been good news for first home buyers. As banks have reduced their criteria for uncommitted monthly income, people may not be eligible to borrow more than they could before, giving more opportunities for home buying.

Inquiry is up and it could translate to more first home buyers securing property. But, as interest rates are still high, this should not be done without advice.

Are You In Mortgage Stress?

Mortgage stress is defined as households having to spend more than 30% of their income in servicing their mortgage. By that definition, many households in NZ are currently experiencing mortgage stress. Recent Canstar analysis shows that to be able to afford an average-priced $995,000 house with a 20% deposit, and repay the mortgage on current rates, Auckland households need nearly $80,000 more than the average income (which is $141,853).

Canstar general manager Jose George says the analysis shows how tough it is in today’s market to avoid mortgage stress. “Paying more than 30% of the household income into a mortgage creates all sorts of other pressures, including being able to afford other bills and maintain general wellbeing. It is a really difficult situation to be in and our analysis suggests numerous families across New Zealand will be facing financial pain.”

Do you think you might be in mortgage stress? The good news is that it appears interest rates are near their peak. But, you might need a sustainable solution for right now. If that is the case, get in touch with our friendly team here at Mortgage Suite. We may be able to come up with a solution that suits your current financial situation.

Chat with us now.

What Is A DTI And What Impact Will It Have?

Posted on May 12, 2023May 12, 2023 by mortgage_admin

It seems imminent that the Reserve Bank will impose its debt-to-income (DTI) restriction tool for new borrowing as early as March 2024.

So, what is a DTI and how will it impact you?

That is exactly what we are exploring today, along with a quick peek at what’s been happening in the property world in the last month.

What Is A DTI?

A debt-to-income ratio (DTI) is a calculation used by lenders to assess a borrower’s ability to repay a mortgage. It is calculated by establishing the percentage of a borrower’s gross income that is used to repay debt, including the new mortgage payment.

As we know, The Reserve Bank has been proposing the introduction of a DTI restriction. The DTI restriction would be a control that would limit mortgage lending to borrowers. For example, if the DTI was set at 6.0, then a borrower’s total debt repayments (including the new mortgage payment) cannot exceed 6 times their gross income. [source]

The DTI proposal has not been implemented yet and is still under consultation. The earliest it would be introduced is March 2024. And it’s also important to note that even if DTIs are introduced, different lenders may have different DTI requirements.

So, it’s always best to seek guidance from a mortgage adviser as they will understand the criteria for mortgage borrowing from specific lenders.

How Could A DTI Impact Investors?

Will DTIs apply to investors? The answer is, kind of.

There will be an investment class, as well as a non investment class for the DTI restriction. There is also an allowance for banks to work outside DTI rules for certain clients, as they have done with low deposit buyers.

So, how do you qualify for an exemption? Well, no one really knows at this point. It is likely that clients with a lot of equity (so, upwards of the current 40% minimum), clients with a larger portfolio of investment properties, or those that have proven borrowing (and servicing) power from a specific bank. [source]

As always, the best idea is to seek expert advice before making any moves. Don’t rule yourself out, as you may be surprised by what could be possible with the right strategy.

What’s Been Happening This Month

Mortgage Rates Exceed Stress Tests

If your mortgage is about to come up for renewal, you might be feeling the pinch right now. Here’s why:

In May’s Financial Stability Report, the Reserve Bank found households that borrowed during the period of very low interest rates between late-2020 and late-2021 (when the market was running hottest) were stress-tested at rates below what they are today.

“Therefore, some of these borrowers and other borrowers with high debt-to-income levels may begin to struggle to meet their repayment obligations as they reprice onto the higher rates,” the report read. [source]

What does it mean? Well, if you are earning at the same rate you were when you borrowed and you’ve recently refixed your mortgage rates, the repayment amounts could be higher than what your income was tested for.

So, if you are worried about meeting these repayments, it’s time to have a chat with the team here at Mortgage Suite so that we can explore whether your current loan structure is the best fit for you still. Get in touch with us now for an obligation free chat.

Property Market Slows Right Down

Winter usually causes the property market to slow, but it seems winter has come early this year. Barfoot & Thompson have reported that Auckland house sales are at a 22 year low. The sales decline was 38.2% down on March and the median sale price was down 2.9% at $995,000. It’s the first time in 16 months that the median sales price has fallen below $1 million. [source]

But, the market slump is not only confined to Auckland. Average home values are down by $114,600 nationally. So, what does it all mean?

Well, if you are selling, you will need to be realistic about your price expectations. However, if you are looking to buy, there are some excellent bargains to be had. Before you make any decisions, the best option is to speak with a financial adviser to see what is possible for your situation.

Is Now A Good Time To Buy?

The market is slowing and interest rates are still high, is now really a good time to buy your first home? Well, any time can be a good time to buy if you understand what is happening in the market.

Yes, interest rates are much higher than they were even a year ago. But, the property market is slow, so there are some good bargains to be had and less competition, especially at the lower end of the market. And, there is great government support to allow first home buyers to secure mortgages.

Property is seen as a good investment here in NZ, as the values generally trend upwards in the long term. So, investing in property now will get you on the ladder and could yield good capital gains in the future.

Where Are Interest Rates Heading?

At a recent Kiwibank function, its economist boldly predicted that interest rates will start to fall around November this year. His view is that Inflation has peaked, tourism is back at pre-covid levels and there will be a drop in wholesale markets.

He believes that the Reserve Bank is likely to increase the OCR at the next review only to prevent later regrets, but that will be the last of the increase. He waged a bottle of whiskey on this…😃

As always, before making any moves in the market, the best thing is to understand your own financial situation and what is possible. Whether you’re a first home buyer, looking to refix your mortgage rates, or considering investing in property, we can provide you with the trusted, expert advice you need. So, get in touch with the Mortgage Suite team today.

What Is The OCR And Why Do The Reserve Bank Keep Raising It?

Posted on April 13, 2023September 12, 2023 by mortgage_admin

You are probably sick of seeing news article after news article announcing that the Reserve Bank has raised the OCR again.

After all, what is the OCR and what does it have to do with steadily climbing mortgage rates?

Let’s look into the answers to those questions now and take a peek at what’s happened in the world of home loans in the last month.

What Is The OCR?

OCR stands for Official Cash Rate. The Official Cash Rate is the interest rate that the Reserve Bank of New Zealand sets to influence monetary policy in the country. The OCR is the rate at which the Reserve Bank lends money to commercial banks. Therefore, it affects the interest rates that banks charge to borrowers and pay to savers.

The Reserve Bank reviews and sets the OCR periodically, typically every six weeks. The OCR is used to control inflation, stabilise the exchange rate, and support economic growth. When inflation is high, the Reserve Bank may increase the OCR to reduce demand and slow down the economy, and when inflation is low, the Reserve Bank may lower the OCR to stimulate demand and boost economic activity.

Why Does The Reserve Bank Keep Raising The OCR?

The Reserve Bank may raise the OCR for several reasons, but the most common is to control inflation. When the economy is growing strongly and demand for goods and services is high, there is upward pressure on prices. If inflation starts to rise above the RBNZ’s target range of 1-3%, the RBNZ may raise the OCR to reduce demand, cool the economy, and bring inflation back to the target range.

Inflation is currently sitting at 7.2% in New Zealand.

Kelleher, ANZ’s Managing Director for personal banking, says high inflation hurts people’s spending power, devalues their savings, and increases business costs, pushing up the cost of living.

“With this in mind, it is understandable the Reserve Bank is strongly hiking the OCR in an attempt to dampen inflation.” [source]

This is one of the main reasons that you see regular notifications that the OCR has been raised and that mortgage rates have been increasing so markedly.

Will The OCR Continue To Rise?

On 5th April 2023, the Reserve Bank surprised economists throughout the country by raising the OCR by 50 basis points to 5.25%. So, will it continue to rise?

“The RBNZ has given little away about what’s next for the OCR, but Davidson, Core Logic chief property economist, says it seems that there will be one more 0.25% rise on May 24, with the tightening cycle potentially ending there.

“That said, it’s still too early to sound the all-clear and suddenly expect housing sales volumes to pick up and house prices to find a floor,” he says.

“After all, new borrowers are still facing tough serviceability testing and a continued wave of existing mortgages are yet to be repriced to current rates of around 6.5%.”

He says these will remain challenges for the housing market for a few months yet – especially with the RBNZ wanting to emphasise that they’re not about to ‘go soft’ on inflation and suddenly lower the OCR anytime soon.” [source]

So, at this point, it looks likely that the OCR will rise again, but hopefully not at the rapid rate that it has risen in the last 12 months. If you have any questions about how these rises impact your current or potential borrowing, then it’s time to have a chat with a trusted mortgage advisor, like the team here at Mortgage Suite.

What’s Happening Currently?

OCR Rise

As we just discussed, the OCR rose to 5.25% on 5th April 2023. This will have an impact on interest rates. ANZ is the first of the big banks to announce increases to both their mortgage rates and their savings rates. [source]

DTI Restrictions

While not yet confirmed, it’s looking likely that Debt-To-Income restrictions will become a formal tool used when considering residential mortgage lending from March next year. If introduced, they are unlikely to have a huge impact as risky lending has already been reduced. Plus, the recent interest rate rises and dropping house prices have meant people haven’t been borrowing as much anyway. [source]

But, it is helpful to know that DTI restrictions will likely come into place and to be mindful of them when considering your borrowing power.

Dropping House Values

The latest QV House Price Index data shows that house values have made their biggest first-quarter fall in more than 15 years. Since the beginning of last year, average house values have dropped by more than $250,000 in Auckland and Wellington. And it looks like they are set to fall further still.

But, it’s not all bad news. According to QV national spokesperson Simon Petersen, “Some economists are predicting interest rates could be close to peaking. With increasing migration into the country only expected to increase demand for residential property, we might see the downturn bottom out later in the year, but there’s still so much uncertainty.” [source]

So, it will be a case of watching to see what happens in the property market and taking advice about your individual situation. If you have mortgage rates coming up for renewal, are considering buying or selling, or would simply like some general advice about where you stand financially, contact the friendly team at Mortgage Suite today.

We hope you enjoy the reads this month. If you want to stay up to date with everything we have going on let’s stay connected on Facebook, LinkedIn and our Mortgage Suite website. If you want to chat about anything Mortgage or interest rate related, please feel free to get in touch.

How Do Banks Set Their Mortgage Rates?

Posted on March 13, 2023March 13, 2023 by mortgage_admin

As Autumn rolls in and we continue to see more than gloomy weather!

As another predicted OCR rise comes into play, we are hearing about another round of mortgage rate increases. But, how much does the OCR really impact mortgage rates? This month, we thought we’d explain some of the factors that contribute to how Lenders set their mortgage rates. So, read on to find out more about that and a quick update on the March finance market.

How Do Banks Set Mortgage Rates?

When you take out a mortgage with a bank, you know that you are going to have to pay interest on the amount that is borrowed. But, have you ever wondered how that interest rate is calculated? Rather than plucking a number out of thin air, there are a number of factors that contribute to that rate. These are the main ones:

Official Cash Rate

Lending institutions, like banks, cannot simply magic up money to lend to their customers. They need to source funds to lend out. These can come from a number of sources, but one of the main ones is NZ’s Reserve Bank. The official cash rate (OCR) is set by the Reserve Bank of NZ and is the fixed rate at which banks can borrow capital. The OCR is reviewed periodically by the Reserve Bank to ensure it is set at the correct rate for the current economic climate. So, changes in the OCR can influence mortgage rates as they impact the cost your bank will need to pay for loan funding.

Funding Costs

The Reserve Bank is not the only place that your bank will source the funds to lend to their customers. They will also borrow money from term depositors and international money markets. Again, there are costs associated with this borrowing, which your bank will need to pass on to you as the customer. They recover these costs by building them into your mortgage interest rates. Basically, the more it costs for banks to borrow capital, the higher your mortgage rates will become.

Competition

There are only so many mortgage customers out there, so lenders will compete for their business. This can have a positive impact on interest rates as banks may adjust those rates in response to what their competitors are doing in order to attract customers.

Economic Conditions

The overall economic state locally and globally can also impact interest rates. For example, NZ is currently experiencing a higher than average rate of inflation. The Reserve Bank is taking steps to raise the OCR in a bid to bring inflation back within the recommended range. Other factors like global interest rates, global financial markets and political events can all impact mortgage rates. As can the economic climate of major trading partners like China, the USA and Australia.

Risk

Lenders will also assess the risk factor of lending to individual customers. They will assess your credit score, income and property value to determine whether you are a high or low risk customer. Customers with a higher risk profile might be offered higher mortgage rates to compensate for the increased risk the Lender takes on by lending funds to you.

Bank Costs

Whether we like it or not, banks operate as a business and have associated costs to factor in. “These, and the other costs banks face, like paying staff wages, marketing to keep their brands in the public’s consciousness, renting premises, paying tax, hedging their interest rate and currency risks, and lobbying for bank-friendly laws, add up to banks’ cost of doing business, and it is all priced into what they charge for their home loans.” [source] As you can see, there are a number of factors that contribute to the interest rates you pay on your mortgage. They are not simply determined by the OCR, but it is a large contributing factor.

A Quick Update – March 2023

Cash Rate Rises Again

As expected, the Reserve Bank increased the official cash rate (OCR) on Feb 22, bringing it to 4.75%. So, what does that mean for you as a mortgage holder? We are all well aware that mortgage rates have increased from the 2% mark to the 6% mark in the last two years. But, are the mortgage rates going to increase further? Well, they may do. But, it might not be by as much as you fear. Just because the cash rate has gone up by 50 basis points, it doesn’t mean that mortgage rates will immediately follow suit. We will likely see changes in the floating and one-year fixed rates, but longer term rates will probably not be as impacted. If you are one of the 50% of mortgage holders whose rates are coming up for renewal this year, we strongly recommend taking advice on what is the best option for your circumstances. Have a chat with the friendly team at Mortgage Suite today.

Term Deposit Rates Rise

One of the positive aspects of mortgage rates increasing is the fact that interest rates generally rise also. So, if you have some savings, you can make them work better for you right now. Term deposit rates are up. Kiwibank is currently advertising rates of 5.49% interest for a 1 year term deposit (minimum investment of $10,000). The other big banks are also offering rates upwards of 5%. These term deposit rates are significantly higher than what we have seen in recent years. It is worth considering as a low risk investment. But, if you have any queries about whether a term deposit is the right investment for you, speak with a trusted financial advisor first. The Mortgage Suite team are more than happy to help you establish how to make your money work better for you.