How to get the best mortgage deal out there

To put it mildly, the steep rise in interest rates ever since October 2021 continues to rock our world – especially the worlds of those repaying mortgages.

If this is you, you are not alone: missed repayments have continued to rise, up 25% since last year, with as of November 19,200 accounts past due, according to Centrix. And many mortgages are due to be repriced (probably upwards) yet again in the next six months.

Will mortgage holders get any respite going forward? It looked for a moment last year that Westpac winding back its two-, three- and four-year rates was a good sign, but the Reserve Bank had some other ideas – keeping with its ‘higher for longer’ message. Perhaps it’s both?

The short answer is we don’t know. Once again, this falls under the category of ‘stuff we can’t control’. What we can do, however, is work hard to get the very best deals out there. It not only makes a huge difference to our repayments, but more importantly to how much interest we end up paying overall. Here are some tips.

No need to be too loyal now…

There’s no obligation to go with your regular bank when you’re buying a house or when you’re refixing your mortgage.

By shopping around, you’ll have a chance to compare rates and fees at different banks, how well they communicate and what their customer service policies look like.

This also creates competition between banks, which is a good thing. It can lead to great deals, such as a bank contributing to legal bills, discounting insurance, offering cashback or lending at a lower fixed-interest rate.

Negotiation is key!  

Doing some research prior will help you feel far more confident going into a negotiation conversation. If you have a good idea of what other banks are offering (as well as what other customers are being offered at your bank), you can sense straight away whether you’re being offered a good deal.

Interest.co.nz keeps its finger on the pulse of what’s being offered out there in terms of rates.

From your bank’s point of view, it is far less expensive to keep you as an existing customer than it is to get a new one. You might be pleasantly surprised with what they offer if you let them know you’re considering other lenders.

Consider talking to a mortgage broker 

You can get a mortgage directly from a bank or through a financial adviser who specialises in mortgages. Both have their pros and cons.

Mortgage brokers deal with several lenders, so they can save you time looking around. They should know the latest interest rates and application criteria for different lenders, and can negotiate on your behalf. They can also help you with putting your loan application together.

Make sure to read the fine print though. If you don't end up borrowing through a loan they find, you may still have to pay a cost.

It’s also good to be aware that they are paid different commission rates from different lenders. This means they may prefer to place you with one lender instead of another because it benefits them more. It may not be the best deal for you.

So go with your eyes wide open and talk to your wider network to make sure you’re getting a good deal.

Only borrow what you need 

When you’re first buying a house, you may find lenders try to lure you into borrowing more than you need. (Or you may simply find yourself trying to borrow as much as you can!)

This can be tempting, but remember you are making a significant long-term financial commitment here. Carefully weigh up the benefits of a more expensive house against the costs of a larger mortgage. You may find that you are happier with a more modest home that allows you more financial freedom.

Make sure to map out a budget (including expenses, income, savings and debt repayments) before you commit to the loan. Our Sorted budget planner can help you with this, so you can make sure you’re not overcommitting yourself.

Make your repayments as high as you can 

It goes without saying that many of us are stretched to our limit currently with increasing interest rates. But, if you can spare a bit of cash, increasing your mortgage repayments can have a massive impact on your future finances.

Say you’re taking out a 30-year, $800,000 loan with a 7% interest rate. The Sorted mortgage calculator tells us that you'll pay a total of $1,915,190 for that mortgage over 30 years.

Or you could increase your repayments by $100 each week. This would make you mortgage-free six years sooner and decrease the total cost of your mortgage by over $250,000. A massive saving.

The sooner you pay off that mortgage, the less you’ll pay in interest in the long run.

Don’t let revolving credit spin you

Revolving mortgages are basically a huge overdraft.

Your balance goes up and down as money flows in and out of your account. Interest is calculated daily on the balance, so the idea is to keep it low by leaving behind as much money in the account as possible at the end of each pay cycle.

They can work well for people who have some decent savings that could bring the cost of the mortgage down, or those with a lumpy income, because there’s no fixed repayments.

But it will only work if you have a lot of discipline. It’s crucial that you budget and stick to a plan to pay off your mortgage. If you end up spending your mortgage money on other things, the debt could get really out of hand.

When that mortgage still feels unbearable 

If the increasing cost of your mortgage is feeling overwhelming and you’re having trouble making ends meet, it’s best to be as proactive as possible.

In the worst-case scenario, you could lose your home and the lender will need to sell it via a mortgagee sale. But in most cases, there are options so you avoid getting to that point.

Reach out to your bank in the first case to understand your options. You may be able to stretch the term of your mortgage or switch to interest-only for a time.

For free personalised support, reach out to the team at MoneyTalks on 0800 345 123, help@moneytalks.co.nz or text 4029. You can even use their service anonymously if you prefer.