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Interesting article in this mornings Sunday Star Times.
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Interesting article in this mornings Sunday Star Times.
Mortgage repayments set to jump
SUNDAY , 13 MARCH 2005
By GREG NINNESS
Homeowners are being warned to fix their mortgage interest rates now or face financial pain later in the year.
Last week's Reserve Bank decision to raise interest rates by 0.25 per cent is expected to add $16 a month to the repayments on a $100,000 mortgage (for a 20-year term) although most homeowners are likely to face much bigger increases.
That is because most homeowners opt for fixed-term mortgages. Two-year terms have been the most popular, This means that people who have only recently taken out a fixed-term mortgage will not need to worry about rising interest rates for some time.
But for those whose fixed terms are coming to an end, it is a different story.
Two years ago the prevailing two-year fixed rate was 6.9 per cent, which means the monthly repayment on a $100,000 mortgage would have been $769.31.
But those terms come to an end, homeowners can look forward to stiff increases in their monthly repayments.
Last week's move by the Reserve Bank has already started to push floating mortgage rates up to around 9.05 per cent.
At that rate, the repayments on a $100,000 mortgage will be $902.94 a month, an increase of $133.63 (17.4 per cent) on the repayments for the two-year fixed mortgages which are coming to an end.
But BNZ chief economist Tony Alexander says people whose fixed terms are coming to an end should look at refixing as quickly as possible.
"You definitely don't want to go floating because you are facing big increase in costs. You want to have a look at a fixed rate."
Alexander says the best option is probably to refix for another two or three years.
Most banks are currently charging about 7.8 per cent for tow to three year-fixed term mortgages, which means someone whose two-year fixed mortgage is coming to an end and who immediately refixes for another two years will face an increase of $54.73 a month on a $100,000 mortgage.
But Alexander warns that current fixed-term interest rates will not last long.
"I wouldn't muck around umming and ahhing for the next six weeks wondering what to do. I'd move straight away."
That was because fixed-term interest rates were about 0.3 per cent below where they should be.
Moves by the Reserve Bank tend to have their biggest impact on floating mortgage rates, but longer fixed-term rates are more influenced by the yields on long term, money market bonds.
And these are in turn influenced by interest rates in the United States, which have been rising lately, Alexander warned.
He predicted that fixed-term rates would rise by 0.25 per cent over the next two to three weeks and by as much as 1 per cent by the end of the year.
This means two-year fixed rates could be 8.8 per cent by Christmas, lifting monthly repayments on a $100,000 mortgage by $117.59.
SUNDAY , 13 MARCH 2005
By GREG NINNESS
Homeowners are being warned to fix their mortgage interest rates now or face financial pain later in the year.
Last week's Reserve Bank decision to raise interest rates by 0.25 per cent is expected to add $16 a month to the repayments on a $100,000 mortgage (for a 20-year term) although most homeowners are likely to face much bigger increases.
That is because most homeowners opt for fixed-term mortgages. Two-year terms have been the most popular, This means that people who have only recently taken out a fixed-term mortgage will not need to worry about rising interest rates for some time.
But for those whose fixed terms are coming to an end, it is a different story.
Two years ago the prevailing two-year fixed rate was 6.9 per cent, which means the monthly repayment on a $100,000 mortgage would have been $769.31.
But those terms come to an end, homeowners can look forward to stiff increases in their monthly repayments.
Last week's move by the Reserve Bank has already started to push floating mortgage rates up to around 9.05 per cent.
At that rate, the repayments on a $100,000 mortgage will be $902.94 a month, an increase of $133.63 (17.4 per cent) on the repayments for the two-year fixed mortgages which are coming to an end.
But BNZ chief economist Tony Alexander says people whose fixed terms are coming to an end should look at refixing as quickly as possible.
"You definitely don't want to go floating because you are facing big increase in costs. You want to have a look at a fixed rate."
Alexander says the best option is probably to refix for another two or three years.
Most banks are currently charging about 7.8 per cent for tow to three year-fixed term mortgages, which means someone whose two-year fixed mortgage is coming to an end and who immediately refixes for another two years will face an increase of $54.73 a month on a $100,000 mortgage.
But Alexander warns that current fixed-term interest rates will not last long.
"I wouldn't muck around umming and ahhing for the next six weeks wondering what to do. I'd move straight away."
That was because fixed-term interest rates were about 0.3 per cent below where they should be.
Moves by the Reserve Bank tend to have their biggest impact on floating mortgage rates, but longer fixed-term rates are more influenced by the yields on long term, money market bonds.
And these are in turn influenced by interest rates in the United States, which have been rising lately, Alexander warned.
He predicted that fixed-term rates would rise by 0.25 per cent over the next two to three weeks and by as much as 1 per cent by the end of the year.
This means two-year fixed rates could be 8.8 per cent by Christmas, lifting monthly repayments on a $100,000 mortgage by $117.59.
Regards
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