Home owners move to break fixed term mortgage contracts

Home owners move to break fixed term mortgage contracts for peace of mind

The Reserve Bank of New Zealand’s move to increase the Official Cash rate by .25 of a percentage point at the end of last week, has seen a surge in inquiries from existing fixed mortgage interest rate holders looking to break their current terms and secure longer term contracts.

Auckland mortgage broker and principal of integrated financial services provider LoanPlan, Christine Lockie, says the move by the Reserve Bank will definitely affect variable interest rates over the short term but, this combined with the increasing cost of funds overseas, was having a big impact on fixed term interest rates.

“Moves like that of the ANZ to lift its three year fixed term to 6.85 per cent – up .45 per cent compared to six months ago – has resulted in a flurry of inquiries form people who have 18 months to two years left to run on their fixed term contracts.

“Essentially they don’t want to be caught out by even higher rates when their fixed term contracts mature. So even people who are paying 5.5 per cent at the moment, for example, are happy to pay above 6 per cent for peace of mind.

“They are not comfortable with the idea being caught out by even higher interest rates in 18 months or two years, ” Ms Lockie said.

Some four and and five year fixed rates are well over the 7 per cent threshold.

She said the main pressure on fixed term mortgage interest rates is from the rising cost of overseas funds on the back of strengthening world economies.

Ms Lockie said expectations that interest rates will rise about two per cent over the next two years meant clients were happy to accept discounts of .2 or .3 from the banks, although the exact discount depended on the circumstances, size of the loan and the fixed term they wanted.

“I think the inquiry is causing some bottlenecks within the banks because they are certainly in no hurry to respond to requests to change fixed term contracts. But certainly we are driving to secure more favourable rates for our clients.”

Ms Lockie said the rising interest rates will naturally reduce the ability of first time home buyers to get in to the market because it reduces the amount they can borrow.

The New Zealand Reserve Bank went up .25 on the basis of rising house prices, a lift in export income, gains in consumer and business confidence and strong inward migration.

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