With most households in New Zealand having a mortgage (or an overdraft, hire purchase or credit card), Kiwis tend to take a keen interest in interest rates.

Recent weeks have seen some exciting drops in borrowing rates, with more reductions predicted to follow in 2009.

If you haven’t already discovered it, check out www.interest.co.nz, the website that shows the interest rates for all New Zealand lenders, updated hourly. The website has displayed some impressive reductions recently, with variable mortgage rates falling to between 7.20% – 8.20% from the main trading banks, and the 1 year fixed rate currently down as low as 6.49%.

So what action should you take?

• If you have yet to buy a house / borrow money, then you should consider delaying for a few months more. Some economists predict that fixed mortgage rates may be as low as 5.0% by April 2009.

• If you are on a variable rate mortgage, then consider taking a fixed term for 6 months, and then re-fixing at reduced rates in June.

• If you are already on a fixed rate mortgage, find out from your bank what the penalty would be to break the fixed term and enter into a new contract. Depending on the length of the loan and the interest rate you are paying, you may be able to save some money on your borrowings.

All current and potential home loan borrowers should be watching interest rates very carefully at the moment; there are some strong competitive pressures at play, with both Kiwibank and TSB Bank offering cheap rates in order to attract new customers. Kiwibank is also offering a “free refinancing” package (conditions apply), which is well worth considering.

So why have interest rates been falling?

• Reduced demand for borrowings has meant the price of money (i.e. interest rates) is falling;

• The banks are competing to attract a shrinking pool of borrowers, so they are sharpening their pencils and offering cheaper rates to “buy” customers;

• The Reserve Bank has reduced the “offical cash rate” in order to stimulate borrowing and expenditure (i.e. spending) in the face of global recession, and is publicly putting pressure on banks to pass these interest rate reductions on to their customers.
It’s important to realise that the world of banking has changed – people no longer stay with one bank for life – they are now able to shop around for the best deal. So don’t just accept the interest rate offered by your bank; check out www.interest.co.nz and save yourself many thousands of dollars over the life of your mortgage.

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