Clients need guidance as rates soar
In a rising interest rate market, should mortgage advisers be recommending a fixed or variable interest rate to their clients?
Auckland brokerage Supercity Mortgages & Insurance managing director Marchy Pang (pictured) said both options had their advantages and disadvantages.
“The benefit of variable rates is they can go up and down, which provides some flexibility and saves money for some clients long term,” Pang said.
“Some Kiwis are able to make higher repayments so they can pay off their home loan faster.”
Read more: BNZ, Westpac slash two-year rates
Pang said variable rates were affected by economic conditions.
“The Reserve Bank is making their next official cash rate decision next week, so many Kiwis will be waiting to see what the outcome of the RBNZ’s meeting is,” he said.
“The Ukraine war, COVID-19, and logistic issues are all playing a part in impacting the RBNZ’s decision.”
Pang said the benefit of fixed rates for clients was having a set repayment amount for a determined amount of time.
“A mortgage adviser can also help a client determine what length of time you should fix for or explore the option of fixing and unfixing over the lifetime of a loan,” he said. “The same loan structure does not fit everybody and it appeals to different client situations. It is vital for Kiwis to talk to an adviser so they can tailor the right solution for them.”
Pang said it was important for mortgage holders who were shortly coming off fixed rates to understand their options.
“Every bank has their different processes and some will allow their customers to lock in their rate again 60 days out before expiry,” he said. “Now is a great time to speak to an adviser before future interest rate increases.”
Read more: Mortgage rates aren't going to get as high as expected – broking chief
Pang said there were two ways Kiwis could navigate the rising interest rate climate.
“Loan structure at the commencement of the loan is very important because even experienced borrowers cannot keep up with changes to rates.
“Setting up the right repayment plan throughout the life of your loan as interest rates fluctuate is a close second.”
Pang said Kiwis should not panic in the current rising interest rate environment.
“Do not overthink it. Your mortgage is a long-term commitment,” he said. “Ensure you have a buffer in place and align yourself with a good mortgage adviser who works with banks and non-banks daily. Make the most of tapping into our area of expertise.”
