Home Loan Relief: Borrowers Could Save Hundreds Each Month
Thank you for reading this post, don't forget to subscribe!Good news for home loan borrowers: many people are set to save hundreds of dollars a month as their fixed mortgage rates roll onto lower interest rates this year.
In the next six months, nearly half of all fixed-rate mortgages will come up for repricing. According to Westpac senior economist Satish Ranchhod, borrowers who fixed their loans up to two years ago may see interest rates drop by 100 basis points or more when they refix.
For example, someone with a mortgage covering 50 percent of a median-priced Auckland home could save over $400 a month. In Wellington, the savings would be just above $350, and in Canterbury, just under $300.
How Big of a Difference?
Reserve Bank data shows that the average one-year special rate has fallen from nearly 7.3 percent to below 5.8 percent. However, those on three-year or longer fixes might still face higher rates when their term ends.
Ranchhod noted that reduced mortgage costs could ease financial pressure for many households. Currently, about a third of households with a mortgage are spending roughly 20 percent of their disposable income on repayments—up from just 10 percent in recent years.
Will People Spend or Save the Extra Cash?
It’s uncertain whether borrowers will spend their newfound savings or use it to recover from the rising cost of living. “A lot of the spending squeeze in recent years has been in essentials like food and insurance,” Ranchhod said. “As people get more money back and the job market picks up, we could see spending gradually increase.”
However, interest rates are likely to settle at “normal” levels rather than return to the very low rates seen during the pandemic.
What About Renters?
Mortgage rate cuts may also ease pressure on rental prices, Ranchhod explained. “We’re starting to hear about reductions in rental pressure, though some increases are still happening due to rates and other factors.”
Economic Challenges Still Ahead
Despite these mortgage savings, Ranchhod cautioned that economic pressures aren’t going away anytime soon. Business surveys indicate a weak job market, with unemployment expected to rise above 5 percent.
On the bright side, Westpac predicts house prices will increase by about 8 percent this year and 5 percent next year.
As mortgage repricing continues, borrowers should keep an eye on the market and speak with financial experts to make the most of potential savings