(Ruoxi’s note: This exclusive guest post by Eugene Bartsaikin, director of Twine Financial Advisers and a Registered Financial Adviser, covers his opinion on the current mortgage interest rate environment and the strategies that homeowners can employ to maximise the opportunities and savings. Although I am personally a fan of mortgage brokers and appreciate the service a good mortgage broker can provide, I have not received and will not receive any monetary benefit from this post or any referral as a result of this post.
Although these rates are appealing, remember that those are advertised rates. The advertised rate you see is rarely the rate you pay as there is a discount margin below this. When you have a broker with access to a bank’s broker unit or a private banker, you’ll receive that discount most of the time on the advertised rate.
Where I see most borrowers miss out on the great rates is when they don’t have a mortgage strategy in place and the factors which drives the best interest rates aren’t considered. The discount margin is temporary so it’s important to review your current circumstances to see if it can be taken advantage of.
Every lender strategically chooses which rates they want to compete on from a marketing perspective. Otherwise it’s a race to the bottom and drags all the other rates down. Brokers can tell which lenders are favouring shorter term rates and those who favour longer term rates. Unless you work in a mortgage lending department in a bank, it’s unlikely that you will know or follow such trends.
The lower your LVR, the more likely you’ll get a better offer. Banks do this in increments, so those with an LVR between 60 – 80% will typically get a minimal discount, and those below 60% will be in the top bracket for a large discount. One issue we’ve noticed is that banks frequently use old valuations and therefore you may not be getting any traction. Consider working with a broker and going through a process to review the valuations the banks use. You can then decide if there is any value in ordering a Registered Valuation to obtain a further discount on interest rates
This refers to the types of properties that the bank has as a security.
If you have your family home – also known as (PPOR – Principal place of residence) – you’ll have preference for the best interest rates generally.
If all your lending at a bank is secured by investment properties your interest rate is generally slightly higher 0.10 -0.20%. BNZ has recently made an update on their website to clarify that investment only portfolios have a 0.10% premium. There was quite a bit of backlash in the investor community when this news broke. However, this has been a common practice for several years. Most other lenders follow a similar policy but haven’t publicly clarified (yet). When brokers review client portfolios, good brokers strategically look at which lender has a preferable policy for their set of circumstances.
This mostly affects new lending more so than existing lending. When there is strong serviceability it helps in the overall negotiation process. The impact isn’t as high as the other factors but helps in leveraging an overall competitive offer.
Cashback is an incentive for new lending to help with the costs (such as legal fees) in getting the loan in the first place and of course for any other use (such as Xmas presents). Several years ago, this was often in the form of gifts such as TVs, holidays, minimal legal costs etc. Today it’s a calculated offer and requires a commitment between 3-4 years to not move banks. Cashback offers are generally between 0.30 – 1.00% of the total new lending. Some banks prefer to compete on interest rates, others on cashback, and others are welcome to negotiate an offer in between. Brokers can help you calculate which offer is most advantageous and negotiate appropriately.
The silly season is also an expensive time of year. Gifts, holidays and time off work all contribute to stretching the budget beyond its limits. It’s also a good time to examine your budget and start planning for your next move in 2019. This would probably include reducing your credit card debt (New Year’s resolution)!
At Twine Financial Advisers we specialise in crafting tailor-made mortgage strategies collaboratively with our clients and their team of professionals. Most clients save on average $3,000 – $5,000 upfront from a mortgage review. But the lifetime savings from getting the best rates every time, intertwined with a cohesive mortgage strategy designed to your lifestyle needs, changes the playing field altogether.
Disclaimer: The opinions expressed by the guest writer are his alone, and do not necessarily reflect the opinions of Ruoxi Wang, New Zealand Premium Homes, Ray White Remuera or any employee thereof (together, the Individuals). The Individuals are not responsible for the accuracy of any of the information supplied by the guest writer. This work is the opinion of the guest writer.