The Reserve Bank announced today a fifty basis point reduction in the official cash rate, which controls the interest rate it charges on money it lends to New Zealand banks. The rate has dropped from five per cent at the start of the year to two point five percent.
Diana Crossan says it’s not possible to predict what will happen in the future and she’s urging New Zealanders to concentrate on their own budgeting and planning to provide them with some financial certainty.
Her warning follows today’s announcement of a 0.5% reduction in the official cash rate, which controls the interest rate the Reserve Bank charges on money it lends to New Zealand banks.
“In this low interest rate environment, people need to look beyond the advertising as new investment offers come onto the market. Don’t be blinded by the offer of a high rate of return,” she said.
New Zealanders wanting to see just what a difference a lower mortgage interest rate will make to their finances can use the mortgage repayment calculator on sorted.org.nz.
Recent rises in interest rates make it even more important that you manage any debt well, so it costs you as little as possible.
Interest rates have already gone up several times this year. Last week the Reserve Bank increased the Official Cash Rate by 0.25 per cent to 6.5 per cent, and banks are expected to adjust their rates accordingly.
For savers an increase in the Official Cash Rate is good news, as the interest rates paid on many savings accounts go up, boosting savers' returns.
The banks have followed last week’s move by Reserve Bank Governor Alan Bollard to increase the Official Cash Rate to 7.25 percent. The floating interest rate is now 9.5 percent.
Dr Bollard warned that the majority of homeowners had not yet felt the impact of the previous months’ increases in the OCR because they had fixed term mortgages. About 40 percent of homeowners will have their fixed rate mortgages come up for renewal within a year.
“The majority of New Zealanders’ mortgages have interest rates that are fixed for a certain period of time, so it’s very tempting to ignore the OCR,” the Retirement Commissioner, Diana Crossan, said.
“The OCR was left unchanged today, but that doesn’t mean it won’t change at the next review in three months’ time. A change in the OCR usually leads to banks changing the rates at which they lend money accordingly, and that would be felt most strongly where people owe the most – on their mortgages.
Ms Crossan said that although people on a floating rate mortgage would feel the impact of an increase in interest rates immediately, those on a fixed rate mortgage should not be complacent.
“Every New Zealander with a mortgage, regardless of whether it’s fixed or floating should calculate whether they can lift their mortgage repayments in line with any increase.” Ms Crossan said.
“It’s tempting to ignore interest rate rises if you are on a fixed mortgage, but you need to prepare in advance for when it expires.”
Ms Crossan says interest rate rises are going to have significant impacts on people’s financial position and may impact on their ability to save or opt into KiwiSaver.
“Home loan rate rises will sooner or later affect even those on fixed rate mortgages. And the increased costs of the repayments could well affect their ability to afford putting 4% of their income toward KiwiSaver,” says Ms Crossan.
Even small interest rate rises can have a significant effect on Kiwis’ home loans and impact on their ability to pay off mortgages, says Diana Crossan.
“It’s tempting to ignore interest rate rises if you are on a fixed mortgage, but you need to prepare in advance for when it expires. Over the next two years more than a third of fixed home loans are up for review, so Kiwis need to be preparing for potential interest rate hikes.