OneRoof editor Owen Vaughan. Photo / File
Savvy homeowners are saving hundreds of dollars a month and tens of thousands in interest while knocking years off their mortgages as rates hit historic lows.
However, property experts warn possible LVR restrictions and further rate drops could ''add petrol to the fire'' as the median house prices in Tauranga and Rotorua hit record highs and demand outstrips supply.
One bank has dropped its one-year fixed interest rate to below 2 per cent and economists say the historically low rates will stimulate the economy but the exchange rate might suffer.
The Kumar family from Tauranga is reaping the rewards of breaking two mortgages and fixing them at 2.49 per cent for one year.
Family spokesman Varinder Kumar, who works at NZME, said that meant savings of $600 a fortnight.
In 2001 his parents bought a brand new home in Pyes Pa for $200,000 and in the following years, Varinder and his brother pooled their money with their mum and dad to buy two more houses.
"We decided to use our four incomes to build up the portfolio."
Now the Kumars were saving the $600 with the hopes of buying a house in Auckland.
"It has given us the flexibility to try and reach that goal."
Chrissie Aratema, of Rotorua and who also works at NZME, is saving at least $100 a week after coming off a three-year fixed-term on one mortgage and breaking another.
The consolidation of both loans on to another three-year fixed-term at 2.8 per cent has enabled her to complete renovations on her home and a rental.
"The new interest rates were definitely the reason I decided to break my mortgage and refinance. I have always locked in three years previously even though someone suggested a year because it was more likely coming down even more in a year's time but I was happy with three years."
Heartland Bank chief executive Chris Flood said its rates were 1.99 per cent fixed for one year and it had experienced incredibly strong demand from across the country.
The bank's floating rate had also been cut to 2.5 per cent.
ANZ Corporate Affairs external communications manager Kristy Martin said it had a special one-year fixed-term mortgage rate of 2.49 per cent compared to 3.55 per cent last year.
Customers would pay $239 less each month on $450,000 loan over a 20-year term that equalled interest savings of more than $4700 in the first year.
Over the full course of the loan, the customer could save more than $55,000 in interest, she said.
Many customers tend to take shorter-term fixed rates in the hope they may be able to fix lower in 12 months' time, she said.
"Lower interest rates make servicing a home loan more affordable which can mean that residual household income can be spent elsewhere. Importantly, it also provides a fantastic opportunity to pay back existing home lending much faster."
Kiwibank Home Loan product manager Richie McLay said its current one-year fixed rate was 2.55 per cent - 1 per cent lower than it was this time last year.
Customers could potentially save $50 a week on repayments for $450,000. If they kept their payments the same they could pay off a 25-year loan three and a half years faster.
Nearly half of Kiwibank's Bay of Plenty customers had taken out new lending over the past six months had opted for some of their lending to be fixed for one year.
ASB executive general manager Retail Banking Craig Sims said its one year rate was 2.55 per cent and it was giving first-home buyers $2000 cashback on a home loan valued at more than $250,000.
A Westpac spokesman said it made cash offers on a case-by-case basis to cover costs associated with buying a home, such as legal fees.
Westpac NZ's current one-year fixed special home loan rate was 2.49 per cent, and was available to all owner-occupier customers with a minimum of 20 per cent equity.
"Over the past year, we've assisted thousands of customers with their homeownership aspirations, including helping first-home buyers into more than 5300 homes."
New Zealand Bankers' Association chief executive Roger Beaumont said interest rates were at historic lows.
"That's good news for households and businesses looking to borrow. The flip side is that investors, including people who rely on interest income, get a lower rate of return on bank deposits."
Kiwibank senior economist Jeremy Couchman said a lower one-year mortgage rate was a possibility.
The Reserve Bank of New Zealand was introducing a Funding for Lending Programme and he expected the Official Cash Rate could cut into negative territory early next year.
"The programme will provide banks with a cheaper source of funding and enable them to pass on lower lending rates to households and businesses. In addition, we also expect the RBNZ will cut the Official Cash Rate into negative territory next year."
A cheaper source of bank funding along with competitive market pressure should work to lower mortgage rates, he said.
"On the housing side, lower mortgage rates would likely add more fuel to an already heated housing market, but also encourage the construction of desperately needed housing. On the business side, there has been a lack of demand for credit in uncertain times. Lower business lending rates would encourage more borrowing and investment by business to aid a recovery in the employment market."
OneRoof editor Owen Vaughan told NZME the Reserve Bank's announcement of potentially bringing back loan-to-value-ratio restrictions (LVRs) in March was "pretty much like putting petrol on the fire" as people raced to secure property before then.
"You can be sure house prices will steadily climb and competition get fiercer.
"That's going to be pretty sharp for first home buyers in the Bay of Plenty area, especially in areas where investors have started to come back to the market."
Vaughan said he expected the next few months would become "real intense".
In December The Reserve Bank of New Zealand would effectively offer commercial banks a discounted retail rate which would lower their funding costs and enable them to cut mortgage rates further.
The Reserve Bank was also considering bringing back LVRS and ASB chief executive Vittoria Shortt said it would move immediately to increase the minimum deposit required from investors to 30 per cent. It is doing it now.
Rapson Loans and Finance owner Chris Rapson agreed rates could drop further.
He said the economy was performing better than anyone had expected or hoped for following Covid-19.
"It means employment opportunities are still there, people are paying their bills, and you don't see the papers full of mortgagee sales. To me, that's a good measure of the health for our domestic economy."
Anyone considering breaking their mortgage should do the maths as rates could go lower.
"So people are probably better to sit and wait."
Meanwhile, Tauranga Budget Advisory Service manager Shirley McCombe said if possible she would advise clients to keep their mortgage repayments the same if they secured a new rate and reduce the term of their mortgage.
REINZ figures released show the median sale price in Tauranga last month was $810,000 compared to $687,400 in October 2019.
In Rotorua, the median house price in October was $580,000 in October compared to $485,000 in October 2019.
Data also revealed a big spike in median house prices for the wider Bay of Plenty region - rising 16.2 per cent from October 2019 to October 2020 to a new record high of $720,500.
'A piece of me will be left here when I leave.'