Mortgage rates are dropping – is it time to lock in a fixed rate or stick with a floating one?
Spring is traditionally the busiest time in the property market, and this year there's an extra buzz in the air. Many Kiwis are wondering what's next for their mortgage rates. The long upward trend has finally broken, and mortgage rates are now clearly heading down. That's welcome news, whether you're dreaming of your first home or looking to renegotiate your existing loan.
The Euribor has turned – what's next?
When you talk about home loans here, you inevitably talk about the Euribor. In recent months, the 12-month Euribor has been making headlines, and it's now dropped significantly from its peak. Analysts are cautiously optimistic: many expect the European Central Bank to continue cutting its key rate, which would also put downward pressure on longer-term benchmark rates. For borrowers, this means repayments on a floating-rate loan could ease in the coming months.
Is the fixed-rate mortgage making a comeback?
When rates were soaring, the fixed-rate mortgage all but vanished from the scene. Now that we've passed the peak, some banks are starting to offer fixed rates at more attractive levels again. Is it a smart option today? It really depends on where you see rates heading. If you believe they'll keep falling, a floating rate is likely cheaper. But if you crave certainty and a good night's sleep without surprises, locking in a fixed rate could be your lifeline – especially as decent offers start popping up again.
Choosing your benchmark rate matters
When you're negotiating with your bank, you'll come across the term benchmark rate (or reference rate). This is the base to which the bank adds its margin. The most common options are the various Euribor rates (1-month, 3-month, 12-month) and the bank's own prime rate. Euribor rates fluctuate with the market, while the prime rate is slower to move. In the current climate, a loan tied to Euribor will benefit more quickly from any rate drop, but it could also turn just as fast if the economy surprises on the upside.
- 12-month Euribor: The most popular choice, reset once a year. Offers predictability without reacting to every minor market blip.
- 1-month Euribor: More sensitive to market shifts; can fall faster, but also rise more quickly.
- Prime rate: Set by the bank, changes infrequently. A good option if you value stability and don't want to constantly watch the financial news.
Get help from calculators – try it yourself
Just reading the news isn't enough, because everyone's financial situation is unique. That's where an interest rate calculator comes in handy. Many banks and mortgage brokers offer online tools to show you how different rates would affect your actual payments. For instance, the EMI Loan interest rate calculator is straightforward: you punch in the loan amount, the term, and an estimated benchmark rate, and it instantly shows you your monthly repayment. It's worth having a play with one before you walk into the bank to negotiate – you'll have a much clearer idea of where you stand.
This spring's situation is historic in many ways. Mortgage rates are falling, but nobody knows exactly how long this will last. The best strategy is to prepare for different scenarios. If you already have a loan, now could be a great time to shop around and check your margin. If you're buying your first home, don't get dazzled by today's low rates – run your sums using both the current rate and one that's a couple of percentage points higher. That way, you'll sleep soundly, even if the market gets a bit choppy.