Floating Mortgages in Demand

Demand in floating rates is on a high with many New Zealanders opting for a floating rate home loan over fixed rate home loans.

Many home owners are switching due to the competitive landscape with banks launching almost daily special offers and discounts on floating interest rates.

But is floating the right move?

It’s certainly something you may need to consider carefully if your current fixed rate mortgage is due to expire in the coming year, or if you are in the market for a new home.

It is always helpful and important you consider the pros and cons of each type of mortgage before making the leap.

Floating home loans – Pros and Cons

PROS

  • Your home loan repayments will fall when interest rates fall (when banks pass on interest rate cuts)
  • These loan types can be very flexible and will often allow unlimited additional repayments
  • You may have the opportunity to reduce your home loan balance faster
  • Given the current financial market, the average variable interest rate is generally lower than a fixed home loan rate

CONS

  • If you have borrowed at or near your repayment capacity, it is risky if interest rates do rise
  • Your home loan repayments will rise if interest rates rise
  • If interest rates rise quickly, your home loan repayments over a certain period of time may be more than those of a fixed interest rate home loan over the same period of time

Fixed home loan Pros and Cons

PROS

  • These loans offer home loan repayment certainty, which means you will know how much your loan repayments will be for a fixed period, regardless of market interest rate changes
  • This loan type will protect you against interest rate rises
  • You can pick the term of your fixed rate home loan depending on what suits your finance goals. Loan terms are available from 6 months to 10 years

CONS

  • This loan type may be less flexible than a variable home loan rate, limiting additional repayment options and excluding the option for a redraw facility
  • If interest rates go down, you will be locked into a fixed term
  • Over the term of your loan you may end up paying more than if you had selected a variable home loan, even in a rising interest rate market

Loan Market mortgage brokers will help you to further refine your needs and match them to the right type of mortgage package for your financial situation. Talk to your Loan Market mortgage broker for a free home loan comparison today.

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