Mortgage War Between Banks Escalates

Make the most of the ongoing battle between banks and other mortgage lenders

Competition among banks to offer the lowest mortgage interest rates has been ebbing and flowing again, with some suggesting the banks are at war.

Interest rates are falling, which is great news for anyone with an existing mortgage, or those about to get one by buying their first home. Less so for savers – people with banked savings, including term deposits, who are receiving less in interest.

Some special interest rates on mortgages are back in the “fours” again, which means a serious improvement for any mortgage holder who had grown accustomed to paying six or seven percent over the last few years.

Mortgage Interest Rate Competition, So What?

Look at an example of how much people could save:

A couple have $750,000 owing on their mortgage. Their current interest rate is 7%, and they are currently set up with 25 years of repayments to go. If they now secure a rate of 4.99%, and – for the purposes of illustration – those savings are continued for all the remaining 25 years, they could save $212 every single week.

Those weekly savings could be used to:

1. Repay the mortgage many years sooner,
2. Lead a better lifestyle,
3. Contribute to an investment, such in shares for retirement, which should provide a better long-term rate of return than the mortgage rate of 4.99%, or
4. For something else.

No one knows how long these rates will be available, and as always, that largely depends on overall market conditions. Some have suggested longer-term rates are unlikely to come down much further, but the reality is no-one knows.

Infometrics chief executive Brad Olsen said commentators kept saying every interest rate cut was taking rates to the lowest point they would reach this cycle, but then another cut would happen.

"It's likely that there might be some more downward pressure on rates as we move through the year, although part of that for the moment at least seems to be driven by more intense competition from the banks as they jockey for position and try to lock in some of that market.

"Margins don't show a lot of additional downside at the short end of the mortgage market at present, but banks trying to position themselves might push some rates lower."

Existing Mortgage Holders Can Benefit from Bank Versus Bank

In the dog-eat-dog banking world, banks will often strive harder to take customers off each other than they will to keep existing customers. This means you might get a better deal by switching your existing mortgage between banks. Naturally, there is no “one size fits all” solution in this area as all costs need to be factored in, so it pays to evaluate your overall financial situation before making such a decision.

 If you’d like to explore this further with one of our mortgage brokers (advisers) simply get in touch.

Mortgage Refinance Activity

Those in the industry (including some of the team here at Become Wealth) report there is a huge flood of mortgage refinance activity underway. Because borrowers have a penchant for trying to game the home loan situation, the duration of fixed terms for home loans is now historically short. Dangerously so for many borrowers, some have reportedly even remained on high floating rates, gambling that future fixed rates will be lower. But that is just a gamble.

The high refinance activity levels will mean banks who win more market share with low offer rates, probably have to offer better term deposit rates to keep their non-market funding levels in line.

Also coming into play are non-rate incentives, such as mortgage cash back. This is when a lender literally pays you to obtain your mortgage business.

Is Your Mortgage Coming Up for Review?

Tips if your current mortgage rate is coming up for review:

1. Almost all banks and lenders have some flexibility in their rate offers. How flexible your lender may be will depend on the strength of your financials.
2. If your repayments are likely to drop considerably, consider making repayments at the same – or near the same level – to repay your mortgage a lot sooner. Your future self might thank you for it!

The Bottom Line: Mortgage Wars

Mortgage rates have fallen substantially from recent highs. If you think you’re able to make the most of the wars between the banks, then why not get in touch for an obligation-free chat with one of our mortgage brokers (advisers).

As always: please keep in mind interest rates are subject to change.