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Pricing chaos in home loan market

[With Graph] The home loan market is becoming particularly competitive and is somewhat chaotic at the moment according to one bank chief executive. [READ ON]

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The honeymoon's not necessarily sweet

Honeymoon, or low-start mortgages, may look good at first glimpse, but Ann Cunninghame says it's worth checking the deal over the long-term before signing up.

Tuesday, January 9th 2001, 9:30PM

by Paul McBeth

Mortgage lenders were doing a stack of advertising pre-Christmas for loans with low introductory interest rates. But now the turkey’s settled and the credit card statements are piling up, it’s a good time to look at whether these loans will actually suit your circumstances.

Sometimes known as honeymoon loans, the ones we’re talking about either have a low initial fixed rate or promise a floating rate below their usual floating rate for a set period (such as a year).

They can be a great deal at a time when you can benefit from the extra savings. However, it pays to look beyond the sweetener and consider your ongoing relationship with that particular mortgage lender, as chances are you'll have your loan for a few years at least.

A lot of honeymoon, or low-start loans, are pitched at first-home buyers who may be struggling to cope with their debt. Paying less interest to start with can be a big drawcard as they often need to buy furniture and have extra set-up costs.

However, they may also be less likely to consider the true cost of the loan and whether any conditions may suit them. As the introductory period is comparatively short, the rate that the loan reverts to will also have far more impact on their total borrowing costs.

Lindsay Hore, Forsyth Barr's National Manager Mortgage Services, says that borrowers should always look at the total deal, not just the interest rates. "A cheaper rate can be more than offset by fees, compulsory insurance and so on."

"For example, you might get a 0.1 per cent cheaper rate at a non-bank, which on a $100,000 mortgage translates to $100 a year in interest costs. However, you might miss out on fee rebates on your banking transactions."

Martin Shepherd of Auckland-based Shepherd Financial Services, which specialises in mortgage and insurance planning, says that borrowers should carefully weigh up the benefits of any loan. He also notes that low initial payments could end up locking people into the loan for a longer period than they require if there are associated break costs.

"As an adviser, I’m ensuring that loans are structured in such a way as to offer flexibility. The usual things – if people are concerned about interest rates, they would be best to lock in at least a portion of their funding under eight per cent and leave themselves with a flexible home loan account which would allow them some savings on their banking and transaction costs."

So, before you embark on your honeymoon or on any loan, it might pay to check out:

  • The actual finance rate of the loan. The lender should be able to tell you this: it takes account of the interest rates involved as well as fees associated with the loan.
  • How the loan is structured. Is it fixed, discounted (below the normal variable rate) or capped (won't rise above a preset level)? After the honeymoon, will it revert to a fixed or floating rate loan?
  • What extra conditions are involved with taking out the loan? Are there penalties for repaying the loan early, and within what time period?

Paul is a staff writer for Good Returns based in Wellington.

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AMP Home Loans 6.49 5.69 6.29 6.40
AMP Home Loans $200k+ 6.39 5.59 5.99 6.30
AMP Home Loans LVR <80% - - 5.99 -
ANZ 5.99 5.85 6.49 6.85
ANZ LVR > 80 5.99 6.35 6.99 7.35
ANZ Special - - 5.95 -
ASB Bank 6.00 5.85 6.49 6.85
ASB Bank Special - - - -
BankDirect 6.00 5.85 6.49 6.85
BankDirect Special - - - -
BNZ - Classic - - 5.95 -
Lender Flt 1yr 2yr 3yr
BNZ - GlobalPlus 6.19 5.85 6.29 6.29
BNZ - Mortgage One 6.60 - - -
BNZ - Rapid Repay 6.19 - - -
BNZ - Std, FlyBuys 6.19 5.85 6.29 6.29
BNZ - TotalMoney 5.99 - - -
Credit Union Auckland 6.20 - - -
Credit Union Baywide 5.85 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Fidelity Life 5.70 5.40 6.00 -
Lender Flt 1yr 2yr 3yr
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 5.90 ▲5.60 ▲5.99 ▲6.35
HBS LVR > 80% - - - -
Heartland 5.95 6.25 6.50 7.10
Heretaunga Building Society 5.75 5.50 6.30 -
Housing NZ Corp 5.75 5.50 6.30 6.40
HSBC Premier 6.24 5.59 6.29 6.55
HSBC Premier LVR > 80% - - - -
HSBC Special - - 5.79 -
Lender Flt 1yr 2yr 3yr
Kiwibank 5.90 5.69 5.99 6.40
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 5.60 - - -
Kiwibank LVR > 80% - - 6.29 6.40
Liberty 5.64 - - -
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society 6.45 5.95 6.60 -
NZ Home Loans 6.10 5.69 6.29 6.60
Perpetual Trust 7.70 - - -
RESIMAC - lo doc 7.34 7.14 7.49 8.05
RESIMAC LVR < 80% 5.84 5.64 5.99 6.55
Lender Flt 1yr 2yr 3yr
RESIMAC LVR < 85% 6.84 6.64 6.99 7.55
RESIMAC LVR < 90% 7.84 7.64 7.99 8.55
SBS Bank 5.90 ▲5.60 ▲5.99 ▲6.35
SBS LVR < 80% - - - -
Silver Fern 5.95 6.10 6.55 7.05
Southern Cross 5.95 6.25 6.50 7.10
Sovereign 6.10 5.85 6.49 6.85
Sovereign Special - - - -
The Co-operative Bank 5.95 5.65 5.99 6.35
TSB Bank 6.04 5.40 5.99 6.40
Wairarapa Building Society 6.20 5.75 5.95 -
Lender Flt 1yr 2yr 3yr
Westpac 5.74 5.85 5.95 6.85
Westpac - Capped rates - 6.19 6.69 -
Westpac - Offset 5.74 - - -
Median 6.00 5.85 6.29 6.85

Last updated: 15 April 2014 9:01am

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