Home loan rates falling, even with rises

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Economists are forecasting that home loan rates will start rising early next year, but overall rates borrowers pay are still falling.

Tuesday, July 28th 2009, 6:27AM

One of the benefits of the massive official cash rate cuts over the past year and a bit is likely to start flowing through to borrowers soon.

That is that effective mortgage rate borrowers pay will start to fall as they refinance their existing home loans.

The effective mortgage rate is a measure used by the Reserve Bank to determine overall interest rates. The calculation adds up all the existing home loans and the rates being paid and comes out with the average overall rate being paid on home loans. Currently the effective mortgage rate is around the 7.5% mark, even though the OCR has been cut from 8.25% in June last year to a historic low of 2.5% now.

JP Morgan says two-thirds of the mortgages written in New Zealand are on fixed rates. Because of this fixing monetary policy changes are not immediately effective in changing the impact of interest costs.

It says that relief is on the horizon for mortgage holders as fixed rate mortgage are reset at lower rates and house prices begin to rise.

"Much of the benefit of the OCR cuts has yet to flow through to borrowers, but as of March, 46% of fixed rate mortgage debt was due for an interest rate reset within a year."

"Borrowers paying 8%, for example, will move to mortgage rates of 6.4%, a significant boost to household coffers."

• Read the full report NZ mortgage rate structure here
  

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