KEY POINTS:
The double figure profits the main New Zealand banks experienced in 2005/2006 were largely due to a burgeoning home loans market as the housing market accelerated. In last year's KPMG survey of banking, mortgage lending made up 54 per cent of banks' total lending.
According to news reports, registered banks' mortgage lending rose from around $70 billion five years ago to about $135 billion in 2006.
From the consumer's point of view, many homeowners like to use brokers to help them choose a mortgage. Between 37 and 42 per cent of loans were processed through a broker compared with 23 per cent several years ago, according to the NZ Mortgage Brokers Association.
All mortgage advisers and banks advise that people review their home loan and
financial circumstances regularly rather than putting it away and forgetting about it for the next 25 or 30 years.
"Mixing and matching different fixed interest periods and types of loans means you can keep your options open, and in many cases pay your loan off faster and pay less interest," says Craig Sims, managing director of The National Bank, Retail Banking.
For example, by putting one portion of your loan on a two year fixed rate and the other portion on a five year fixed rate, you're in a much better position should interest rates reduce. This can have a significant impact on how much interest you end up paying. In this scenario, by keeping your repayments at the same level you can pay your loan off faster.
How to cope with rising interest rates
In a climate of rising interest rates, you may find yourself paying a lot more every month than you were a few years ago. ASB suggests making a change to the way your loan is structured. For instance, you can extend your loan term from 20 to 25 years to keep your repayments the same or to lower your repayments.
Banks are always thinking of new mortgage products to give them the edge with new customers. Early last year, Westpac launched a retail banking product aimed at increasing consumer awareness on environmental issues.
The Green Home Loan provides customers with discounts on environmentally friendly products and services to help reduce their carbon footprint and save money on their utility bills. The vouchers are available to anyone who takes up a Westpac home loan.
5 smart ways to tackle your home loan
The five examples below are based on a $200,000 home loan at 9.40 per cent p.a. fixed 2 years for a term of 30 years.
Make payments fortnightly
If paying monthly, by paying half of your monthly repayments on a fortnightly basis, you end up making more repayments year.
So, on a $200,000 home loan, you can cut nearly nine years off your loan - saving just over $138,000 in interest payments.
Pay off lump sums when you can
On a floating rate: With a standard variable rate, or revolving home loan such as Orbit and Orbit FastTrack, there are absolutely no penalties for early or lump sum repayment.
On a fixed rate: Increase the repayments on your fixed rate home loan by up to a further $1,000 per month or $500 or fortnight; with no penalties. (However, keep in mind that any increase must be for the remainder of the fixed rate term). So if you can't keep up the increase, you can save any extra money and make a lump sum payment when the term ends.
Increase regular payments
Paying an extra $40 a fortnight on a $200,000 home loan would leave you debt-free 6 years earlier and save you 25 per cent in interest.
Shorten the term of your loan
By reducing a 30 year loan to a 20 year loan, you could save as much as 39 per cent in interest (or just over $155,000)
Maintain payments at the same level when rates drop
You'll save money on interest and pay off your loan faster. Just pretend your rate never dropped in the first place and you'll be paying off that loan in no time.
Source: ASB
Interest rates
Over the term of a loan you'll pay much more in interest rates than fees. If you take a very long term loan, it is possible that the amount of money you pay in interest will be more than the sum you borrowed. That's a good incentive to pay off your loan as quickly as you can. There is strong competition between lenders on interest rates. The other big influence on mortgage rates is the movement of wider interest rates in the financial markets, and these are largely influenced by the Reserve Bank through the official cash rate (OCR).
Source: www.sorted.org.nz.
