Recently we have seen a major NZ bank offer a 12-month rate substantially below anything else available in the market. The offer was surprising and unable to be advertised as it only applied to new business. With inflation running hot and interest rates creeping ever higher, many borrowers sought to obtain this rate to achieve temporary relief of cashflow and score a bit of a moral victory.
In response to this, competing banks also began offering similar rates on longer terms (slightly higher but with 1% cashback added to bridge the gap) and even matching the very competitive rate on offer as a retention tool. This ignited a bit of a price war between major banks and many of our clients were able to lock in substantially better offers than previously expected. The flurry happened very fast and bank queues began to fill up with application, pushing service levels out substantially.
Banks have ‘simplified’ the re-fix process by offering existing borrowers’ digital rates that are tailored to their unique situation, saving them time and staff effort to re-fix their loan books. However, the previously highlighted situation proves using a good advisor is worth its weight in gold. Not only do you receive customised advice, but you have an independent representative with access to the market – ensuring you consider all options available and get the best overall deal.
It may be tempting to DIY manage your home loan, especially when it as easy as literally pressing a button, but you have little way of knowing if you are making the right decision without professional advice.
I believe we will continue to see discounted rates offered at times ‘under the line’ as banks struggle to maintain the level of new business they became used to over the past bull market. Make sure your adviser is aware of the decisions on your plate and have them double check that something better isn’t hiding around the corner.
Example: John has $1m existing lending on a 20 year term and was offered 6.49% for 12 months to re-fix with his existing bank.
If he takes this option, he will pay roughly $64,157 in interest over the next year. Had John been able to obtain the 4.99% special rate for 12 months, he would pay roughly $49,222 in interest over the next year.
Total savings of $14,935 – using these spare funds to make extra repayments would have a substantial impact on his future debt reduction.
Anthony Sage is an Advice Knight Adviser; you can reach him by email anthony@adviceknight.co.nz or phone 022 651 7802.