If you have a fixed-rate mortgage that's about to expire, you may be wondering what to do next as interest rates continue to rise. While there's no one-size-fits-all answer, here are some factors to consider as you weigh your options.
What’s next for interest rates?
While there's no crystal ball to predict the future, economists generally agree that interest rates are unlikely to drop anytime soon. In fact, to control inflation, the Reserve Bank are likely to continue to increase the official cash rate (OCR) for a while – though it’s not clear for how long.
That’s why it’s important to take predictions with a pinch of salt and prioritise your needs instead, including your budget, plans and goals.
Budget certainty or more flexibility?
If you want to have more budget certainty and protect yourself from potential rate hikes, you may want to consider fixing your mortgage rate for a longer term – like two or three years.
Often, when there are signs that mortgage rates might start reducing in the short-to-medium term, longer-term fixed rates tend to be lower than shorter-term fixed rates. Of course, should interest rates drop before your fixed-term mortgage expires, unless you break your loan (with a likely early repayment fee payable)you will miss out on the lower interest rate from the time the fixed rates drop, until the end of your fixed rate term. But, depending on your situation and needs, it may still be worth paying a slightly higher rate to secure your repayments for a longer period of time.
On the other hand, if you prefer more flexibility, you may want to consider shorter-term rates. These are generally still lower than the floating rate, and they allow you to take advantage of lower rates sooner if they're available. However, the opposite is also true.
What are your plans and goals?
Alongside your budgeting needs, your plans and goals are another key consideration, as well as whether your mortgage structure is working for you. For example, if you're planning to sell the property or buy an investment property, a shorter-term or floating rate may be more appropriate for your needs, as you could make additional repayments or repay in full at the end of a shorter fixed-rate period with no penalties.
You can also split your mortgage
With so many options to choose from and so much uncertainty, you don't have to have your entire mortgage on the same fixed or floating rate. Instead, you can split your loan into as many portions as you like and have it fixed across different terms.
This strategy allows you to "spread the risk" of being hit with a significant rate (and corresponding repayment) increase all at once when a fixed rate expires. Plus, it can help you achieve some budget certainty with the longer-term fixed rates and flexibility with shorter-term fixed rates, giving you the best of both worlds.
However, splitting your home loan may not be the right option for everyone. Would that be right for you? Get in touch. We can help you answer this question.
When will your fixed-term rate expire?
If you're not sure when your fixed interest rate is due to expire, it's a good idea to check now. Most lenders notify their customers six to eight weeks before the rate expires, and you can lock in a new rate within that timeframe.
By fixing your rate as early as possible, you may avoid further rate hikes and protect yourself from potential increases. However, if you don't take any action, your mortgage will automatically switch to a floating rate, which may not be appropriate for you.
Get quality mortgage advice
When it comes to choosing the right mortgage structure, everyone's situation is different. And that’s where seeking professional advice can make all the difference. If you want to future-proof your mortgage and explore your options, don't hesitate to contact us today.
We're here to help you navigate the complexities of mortgage financing and make an informed decision for your financial future.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
Link Financial Group Ltd trading as Mortgage Link and Insurance Link FSP 696731 holds a licence issued by the Financial Markets Authority to provide financial advice. Please visit https://mortgagelink.co.nz/available-disclosure/ for more information and Disclosure information.
