Fixed mortgage coming up for renewal? Should you refix? How do we know what to do and when? How do we do it?

 

A lot of us will be coming off really good fixed mortgage rates and have no clue what to do.  I will look, over the next few days in these blogs, at different mortgage options for you.

Today I will be looking at what to do if you want to refix your mortgage.

In the time coming up to your mortgage renewal date, do some research.  I am not talking about watching the media reports, but do some actual research.  A site I like to look at for really good, free, accurate information is www.interest.co.nz  Have a look under borrowing and you will find a really useful spreadsheet.  In fact have a look all around that site, it has really interesting reading.  I have heard of people getting financial advice etc from tiktok and facebook.  Please, don't get advice from  social media go to reputable sites.

The interest.co.nz spreadsheet has the mortgage rates for every single bank and lending institution in New Zealand.  This list is updated daily so it is always accurate.

Have a look at what is the cheapest option for you.  

If another bank is offering a lower rate than yours, let your bank know and try to get them to match or better the rate.

Check out what the banks are offering for up to five years, if it is minimal difference from the one year rate then it usually means their prediction is a drop or to maintain the same.  That would imply that if you fix for one year, you are not losing any security by doing so, in a year's time the bank may be the same or lower.  Look at the lowest rate you can possible get and fix for that term.

It is definitely crystal ball gazing and a gamble whatever you do, but this is the biggest debt of your life!  Try to educate yourself on the best course of action.  Don't just let things happen without looking into it.

If you do nothing you will go (as a default) onto the variable rate which is much higher than any fixed rate at the moment.

Haggle as much as you can, we can often ask the bank to "sharpen their pencil" when they make an offer, they may not reduce the offer, but they definitely won't if you don't ask!

Remember, if you have fixed at a high rate and there is a lower rate available, ask how much it would be for you to "break" your fixed rate period, get them to give you a quote and then work out (with the bank calculator) how much difference it would make to your mortgage.  I will talk more about break fees in upcoming blogs.

Here are a few examples, calculations of these figures were done on an online bank calculator, put your numbers into one you are comfortable with and see what a difference it makes to you.

Lets imagine you have a $400,000 mortgage, you have been on a fixed rate of 2.95% and it is coming up for renewal this month.  Currently your mortgage looks like this:

• $400,000    $1,885/mth    25 yrs    2.95%    Interest paid over term of loan $166,147

At thig point you are feeling all rosy and things are OK.  However, if you choose to turn a blind eye and do nothing, this is what can happen!  Look at the difference in repayments and the difference in interest paid over term!

• $400,000     $3,017/mth    25 yrs    7.74%  Interest paid over term of loan $506,648

So when thinking of the best thing to do, lets fix at the cheapest rate at the moment which, at this particular bank is 18mths at 6.49%, that will mean things will looks like this:

• $400,000    $2,696/mth    25 yrs    6.49%    Interest paid over term of loan $410,550

There are a few things you can do to further help you in this situation.  In this scenario you can change your repayments to fortnightly. and keep the term at 25 years.  If you do that, this happens:

• $400,000    $1,240/ftnt    25 yrs    6.49%    Interest paid over term of loan $410,255

Find out another bank if offering a better rate of 6.29% ask the bank to match it and this happens:

• $400,000    $1,217/ftnt    25 yrs    6.29%    Interest paid over term of loan $395,381

In all of these scenarios I have looked at maintaining the term of 25 years, so at least, while the interest rates are high you can maintain your term of your loan and not work backwards.  

While there is still an increase in repayments of around $137/week, if you had done nothing your increase would have been $283 per week.  Big difference when it is every week and adding up.

I have other ways to show you in my blogs this week how to keep bringing this figure down so you can afford your mortgage moving forward.  You will be truly amazed when I talk about offsetting and revolving credit mortgages and how they can really help reduce your repayments.

For the moment please make sure you understand the figures above before you move on, there is a lot to digest in this and you will get it.

Also, if you need to go back over the credit card blogs, these become really important moving forward. 

Remember numbers don't lie!  You may even be able to get a lower rate than the one quoted here, see how you go.

Have a fabulous day everyone!  If you keep reading along with these blogs you will absolutely move ahead in leaps and bounds.