20 Dec What Home Loan Interest Rate Can I Expect?
Interest rates are one of the most important factors to consider when securing a mortgage. They can have a significant long-term impact on your finances, depending on the size and term of your loan. Understanding what shapes these rates and what can be done to reduce them can help answer key questions, such as “What home loan interest rate can I expect?”
Bank-provided interest rates only tell part of the story. A Mortgage Adviser can help you get a clearer picture of what a good home loan interest rate is and how it fits your financial goals. For more information about home loan interest rates, what makes them change, and how to influence yours, read our guide to interest rates today.
Factors influencing home loan interest rates
The Official Cash Rate (OCR)
The OCR, set by the Reserve Bank of New Zealand, plays a major role in shaping mortgage rates and home loans in NZ. It affects banks’ borrowing costs, which are passed on to customers. For instance, when the OCR is increased to curb inflation, mortgage interest rates tend to rise. A lower OCR usually results in more competitive mortgage rates.
Monitoring OCR trends can help borrowers effectively time their applications or negotiate interest rates. This benchmark is adjusted seven times a year, so staying informed about changes is key to predicting the home loan you can expect.
Economic factors
In addition to the OCR, general economic conditions, such as inflation, also impact interest rates. Inflationary pressures drive up the cost of living, influencing the Reserve Bank’s decision-making and policies. During low inflation or slow economic growth periods, rates may drop to encourage greater borrowing.
Understanding and recognising these conditions can help borrowers anticipate how interest rates usually change and under what circumstances this change occurs. Although it may be tempting to check the state of the economy frequently, doing so every day can become tiring and may even demoralise you in the long run. Instead, focus on other factors you can control, such as your finances.
Deposit amount
The size of your deposit could significantly affect the home loan interest rate you can expect. Generally, a larger deposit of 20% or more of the property’s value will qualify you for better interest rates. First home buyers have access to more flexible options that require a smaller deposit of 5 – 10%, but this tends to cause the interest rate to increase. Large deposits represent less risk for lenders, which makes these mortgages more attractive.
Fixed vs floating rates
The structure of your loan will also determine the interest rates the lender sets. Fixed-rate loans offer certainty over a period from half a year to several years, allowing you to plan your repayments without worrying about market fluctuations. Floating rates, however, move with market conditions. Choosing a floating rate can be beneficial when rates are dropping, but it also carries the risk of increasing repayments if rates rise.
How to get the best possible interest rate
Interest rates may seem intimidating and out of your control, but there are levers available to every New Zealander hoping to find their dream home that can be used to get there more affordably.
Check your credit history
Organising your finances is a key step to navigating the mortgage process and positioning yourself to get the best mortgage deal and interest rates possible. Lenders will examine your credit score, which usually ranges from 0 to 1000 (however, Equifax, one of the three credit bureaus in New Zealand, uses a scale of 0-1200). A bad credit score makes it more difficult to get a mortgage and limits the scope of how much you can borrow.
Whether you’re planning to buy a house soon or in the future, paying off your debts and loans may help you secure a lower home loan interest rate, reducing your financial burden over time.
Increase your deposit
One of the most direct ways you can improve your interest rate is by increasing the size of your deposit. Gathering the money to do so is no easy feat, but as a tangible step in the journey to secure a mortgage, it should be prioritised. A larger deposit—typically 20% or more of the property value—often qualifies you for more competitive rates. First home buyers have more options and may be able to secure a home loan with a deposit of around 5-10% but at higher interest rates.
Consider a Mortgage Adviser
If you’re looking to secure a mortgage with lower interest rates and better terms, working with a Mortgage Adviser can be a smart approach. Mortgage Advisers can save you time and money by comparing rates from different lenders on your behalf. They can also help you structure your loan and enter a mortgage that aligns with your long-term goals.
Before selecting a Mortgage Adviser, it’s important to know the key questions to ask to ensure you’re making informed decisions.
Looking for a Mortgage Adviser to help you with competitive interest rates?
Securing the best interest rate is easier with an experienced Mortgage Adviser. However, it’s worth noting that the interest rate is just one component of a home loan, and there are other important factors to consider, such as loan terms, fees, and repayment flexibility. Max Mortgages provides award-winning services that can help you navigate these key factors to find an ideal lending option and even negotiate on your behalf. To learn more about what impacts interest rates and what you can do to get a better deal, get in touch with our team today.
Contact a Mortgage Adviser
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