On May 24th, 2023, the Reserve Bank of New Zealand (RBNZ) announced a 25-point increase in the Official Cash Rate (OCR), raising it from 5.25% to 5.50%. This decision marked the 12th consecutive rate hike and has caused a ripple effect on mortgage rates across lenders. As a result, borrowers, those with floating term loans or revolving credit products, are witnessing upward adjustments in their interest rates. This increase in rates has significant implications for the total interest cost for borrowers, making it imperative to re-evaluate existing loan facilities. The increase in interest cost has caused a decrease in the disposable income for consumers.
To understand the potential impact, let’s consider an example. Prior to the COVID-19 lockdown, an outstanding balance of $350,000 with a variable rate of 5.20% would accumulate an interest cost of $18,200 per year, equivalent to $1,517 per month. However, in today’s world, that same balance at a variable rate of 8.64% would accrue an interest cost of $30,240 per year, equivalent to $2,520 per month. This increase of approximately $1,003 per month can significantly affect your financial position, particularly considering the rising cost of living expenses.
As homeowners, we are responsible for meeting ongoing costs such as house insurance, utilities, council rates, body corporate fees, repairs, and maintenance. Saving on interest costs becomes crucial in balancing these financial obligations. Before the COVID-19 era, interest rates had been on a downward trend, leading many to adopt a wait-and-watch approach, anticipating further decreases. However, this strategy may not prove beneficial now, as the potential drawbacks associated with changing interest rates can outweigh the benefits.
Regardless of your current financial situation, now is the time to review your existing loan facilities. Engaging a financial adviser specialising in Mortgages, can assist with well-informed decision and adapting to the changing landscape of mortgage rates.
Don’t hesitate to connect with us, we can analyse the numbers and provide possible solution to suit your circumstances.
Disclaimer: The article should not replace or used as a substitute for personalised financial advice. It is recommended that you seek independent financial advice based upon your needs, goals, and situation. SK Financial Group and their employees cannot be held accountable to the information in the article. Indicative interest rates have been used from external websites; we are not responsible for accuracy of data. Please check our disclosure statement on our website for full information, alternatively you can contact us for full disclosure, terms, and conditions.