With interest rates on the decline, many mortgage borrowers find themselves at a crossroads pondering how to maximise the benefits of these interest rate cuts.
If you are coming off a rate that is currently higher than what’s on offer, the decision whether to reduce your mortgage repayments or maintain the same repayment amount can weigh on your mind.
Conversely, if you’ve recently refixed your mortgage at a higher rate, should you break now and refix on the lower rate?
In this article we’ll delve into the considerations borrowers should weigh up, providing insights on crafting a mortgage repayment plan that aligns with your long-term financial goals and adapts to the ever evolving interest rate landscape.
Cutting Your Repayments vs. Maintaining Them
Choosing between cutting repayments and maintaining them when interest rates fall is a pivotal decision for borrowers who are coming off a high rate.
It can be enticing to reduce your repayments in line with the reduced rate as it can provide financial relief in the short term, which is particularly valuable for those who are faced with rising living costs or unexpected expenses.
On the other hand, maintaining the same repayment level despite lower interest rates, can help you to pay your loan off faster leading to substantial savings on interest costs over time.
You will also be better positioned to weather future interest rate hikes, as a smaller loan balance means lower interest costs.
You can also look at a “half/half” approach, where we restructure your lending by splitting your mortgage across different interest rates so you can still take advantage of paying your mortgage down faster.
Each approach has its own merits, and the best choice depends on your individual financial circumstances and long-term goals.
Should you Break Now and Refix at the Lower Rate?
If you have recently locked in a higher rate, you might be wondering whether it’s worth breaking this term to refix at one of the lower rates now available.
Before making a decision, it’s important to talk to a Mortgage Adviser to perform a cost-benefit analysis as breaking a fixed-term loan can incur a break fee, which could negate any potential savings from switching to a lower rate.
We will calculate whether the savings from the lower interest rate over the new fixed term would outweigh the break fee and any other associated costs that come along with it.
We will also look at whether refinancing your loan to another lender to take advantage of a lower rate would be of benefit as a cash contribution could potentially out weigh the break fee and other costs as well.
The key message here is that everyone’s situation is different and a Mortgage Adviser is best placed to help you evaluate factors such as cash flow needs, future financial plans and the potential for interest savings.
The idea is to craft a mortgage repayment strategy that aligns with your financial objectives and adapts to ongoing interest rate changes, so please feel free to reach out if you need a hand.
Applications for finance are subject to meeting the lenders criteria, terms, and conditions. Refer to our website www.hbmi.co.nz for our Public Disclosure Document.
