Mortgages - why you should shop around


Home owners are being advised to shop around if they are looking for a new mortgage.

Canstar says there is a 40 basis point difference between the cheapest and the most expensive floating home loan rates.

The rates range from 5.25 percent to 5.65 percent. On a $400,000 mortgage over 25 years, 40 basis points amounts to almost $95 per month.

Canstar says the rates vary even more widely on fixed-term mortgages.

Its database shows the following variation in rates:

The advice to shop around also applies to savers investing in term deposits.

The Reserve Bank's (RBNZ) decision to hold the Official Cash Rate at 2 percent yesterday was widely expected.

The markets are predicting at least one more rate cut, after the RBNZ said that "further policy easing" will be needed.

That rate cut could happen at the RBNZ's next OCR review on November 10.

But people should not count on all of that 0.25 percent cut being passed on to mortgage rates.

That's what happened with the two most recent cuts to the OCR. The banks did not pass on the full cut to their mortgage customers.

Mortgage rates are in part determined by what it costs the commercial banks to borrow money from offshore or from New Zealand savers.

Competition is growing in the local term deposit market. They banks have seen a steady flow of savers moving their term deposits to other investments like the share market. That means the banks are having to increase some of their savings rates to attract or retain customers.

Economists at BNZ say the competition deposit market may "more than offset any relief banks receive from a decline in the offshore cost of credit".

BNZ has also warned that there is no guarantee that rates won't go up in offshore credit markets, due to the prospect of the US Federal Reserve hiking rates by the end of the year.

"Overall floating rates may not decline much further from current historic lows even if the OCR is cut," BNZ says.


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