Another bank trims a key fixed home loan rate. We review where the market is settling to and assess how much lower it could go as banks try to protect their margins

October is ending with yet another rate cut from a major bank.

BNZ is matching ANZ with a 4.15% one year fixed carded rate.

ASB and Westpac also have carded 4.15% rates, although for eighteen months fixed.

And the market looks like it is moving to 4.19% for two year fixed rates even if most are still at 4.29%.

Wholesale swap rates justify a +6 bps premium for two years over one year, so there will be competitive pressure and room to move in the market to discount current two year rate offers.

The next two months are an important time for bank rollovers as there are a disproportionate level of fixed rate loans falling due in this time of the year.

Headline rates are sometimes harder to extract discounts from, but the rate structure at present might not be as 'fixed' as it seems.

Here is one way to look at it:

Fixed term Lowest offerer, any bank Rate Swap margin
    % % bps
1 year HSBC Premier 3.85 1.94 191
18 months HSBC Premier 3.85 1.97 188
2 years SBS Bank 3.95 2.00 195
3 years ASB 4.39 2.09 230
4 years SBS Bank 4.89 2.19 270
5 years SBS Bank 4.89 2.31 258
7 years BNZ 5.95 2.53 342
10 years TSB 6.20 2.79 341

And here is the same comparison just for the main banks:

Fixed term Lowest offerer, main bank Rate Swap margin
    % % bps
1 year ANZ, BNZ 4.15 1.94 221
18 months ASB, Westpac 4.15 1.97 218
2 years Kiwibank 4.19 2.00 219
3 years ASB 4.39 2.09 230
4 years ASB 4.95 2.19 276
5 years Westpac 4.99 2.31 268

The difference between the two tables is about 30 bps for fixed terms to two years.

Getting another bank down to the lowest offerer shouldn't be too difficult. Banks are usually keen to match the main rivals to hold or win business.

Going below carded rate offers is also possible and that will depend on a range of factors you bring with the business available to a bank.

The two big factors are the strength of your financial position, and the size of the loan.

You are in a stronger position when you have an loan-to-value ratio of less than 80% if you are an owner-occupier.

And if you are borrowing more than $750,000 you will almost certainly get a larger discount.

A combination of the two might entice a bank to offer up to -15 bps below carded rates.

You may also find cash-back incentives are available. Figure on 0.7% of the loan value, up to a maximum of about $8,000.

Usually it will be one or the other; discount or cash, but a combination within those limits is worth talking about.

Which is better? Often you are better to take the hard cash (and apply it against your loan balance is recommended) than the discounted rate. But the math is easy to work out. Use our comprenensive mortgage calculator here to do that.

And if you aren't exactly in the market today for one of these newly lower rates, you may wonder what the costs of breaking an existing contract would cost. You can estimate that here.

We are in a falling rate environment, but regular readers will know that internationally, rates, inflation and policy direction seems to be firming, and quite quickly in some major financial markets. In the intermediate term, New Zealand won't be able to avoid those global pressures. And they may hit closer to home if local inflation moves up on the back of higher fuel prices, higher taxes, and lower exchange rates. The lower rate environment may only be here for a relatively short time.

See all banks' carded, or advertised, home loan interest rates here.

Here is the full snapshot of the fixed-term rates on offer from the key retail banks.

below 80% LVR 6 mths  1 yr  18 mth  2 yrs   3 yrs  4 yrs  5 yrs 
as at October 31, 2018 % % % % % % %
ANZ 4.99 4.15 4.85 4.35 4.49 5.55 5.69
ASB 4.95 4.19 4.15 4.29 4.39 4.95 5.09
4.99 4.15 4.79 4.29 4.49 5.19 5.39
Kiwibank 4.99 4.19   4.19 4.49 4.99 5.09
Westpac 4.99 4.19 4.15 4.29 4.49 5.29 4.99
4.50 4.19 4.29 4.35 4.49 4.99 5.15
HSBC 4.85 3.85 3.85 4.19 4.69 4.99 5.29
HSBC 4.99 4.19 4.49 3.95 4.49 4.89 4.89
4.85 4.19 4.29 4.29 4.49 4.95 4.99

In addition to the above table, BNZ has a fixed seven year rate of 5.95%.

And TSB still has a 10-year fixed rate of 6.20%.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Anyone been refinancing lately? What rates have you been able to extract from the banks and any cash incentives?

I just got offered 4.29 for 3 years, ANZ... 300k ish and 70% equity...
might go for it? ...
carrying a fair bit of cash in TDs too (lack-lustre rates), and its tempting to pay the mortgage off, but be broke! .. but I have a young family and we intend moving back to nz in 18 months, been "exiled" for a decade overseas.. and I kinda like to have our cash as "sleep-well-at-night insurance"... and as a "beginning new life" fund.

Pull the TD's and pay down the mortgage. You can always keep a large revolving credit facility that you can draw down on, any time you need it.

Hey exiled...make sure you get a revolving credit or an offset account. There is no point having $ in term investments while paying mortgage rates. Put the funds against your loan without reducing your current loan limits. You can pull the $ out at any time but are effectivley earning the mortgage rate and no withholding tax.

No point having large term deposits when you have a mortgage. You keep an emergency fund of like $10K and the rest goes on the mortgage.You hit the "beginning new life" when its paid off, the transformation in your financial situation is radical and takes a while to get used to, its like winning Lotto.

BNZ offered 10 points off their carded rates last week on $300K. 2 years 4.19% and 4.39%.

Couple of weeks ago - 4.09 1 year, 5.3 floating and $3500 cash - ASB

What does everyone expect the cashback terms and conditions to be these days? For instance the last time I got one it required I keep the lending withh the bank for 4 years.

My previous 2 cashbacks were 2 year claw back, I fixed for 2 years so had the power to leave after the 2 years and a better negotiating position.
My last refinance went to ANZ and they would not go under 3 years for the cash claw back. I was with WP and they had extended their condition to 4 years.
It is a bit lousy as I now have a weak bargaining position for my next refinance mid 2019 with still 1 year to run on the cashback bribe.

Does it cost to change banks once your fix term is up and everything starts floating?

Yes, solicitor costs to discharge the mortgage and re-lodge with the new bank on the title. Around $750 GST (last one I did) and disbursements. Just use the cheapest one you can find, it's a pretty simple process. This is what the cash contribution is for, depending on the size of your mortgage, you may be able to squeeze several K more than the legal fees out of the bank.

Once floating you are free to change banks without penalty but MTP is right you will have solicitors fees… BUT it shouldn't be too hard to convince the new bank to pay for these costs

Kiwibank have thier own lawyers for simple transactions (no trusts companies or more then 3 houses) so no fees. Cash contribution is still paid as well.

Its the claw back of the cash contribution which is the pain. I always tried to align cash back with my fixed term but Westpac wouldn't have it last time. I fixed for 2 years at 4.3% but had to agree to 3 year bonding (the cashback they offered was too good). So in a pickle when mortgage floats after 2 years as repaying the $10k cashback will be the penalty if I leave Westpac before 3 years.

My brother fixed $200K at 3.99% for 1 year with kiwibank and got $2000 cash back so effectively 2.99% for a year after which he can negotiate or refinance.

He probably won't be able to refinance with another bank (won't be worthwhile) as the cash incentive will have a claw back clause (never seen a term of less than 2 years). So he will have to stay with KB and they will most likely not offer below carded rate on the renewal.

Opps DP.

Good to know, was wondering if smaller balances still attract decent rates. We’ve got $160k, not due for renewal for another few months but wondered if it’s worth our time ditching the Credit Union for a better rate when times up.

Recently negotiated me a very good rate for a property. Highly recommend. Will shop around the banks for you. Based in AK but works nationally.

I could never use a broker whose web-page image is so large it fills my entire monitor, that's just scary. Halloween?

Wow, you're right. I posted the link from my phone, so it takes you to the mobile site.

FYI, I get 3.99% for 1 yr with ANZ (I do have long standing large mortgages with them)

Yvil, what would you consider a "large" mortgage to be? Someone asked me this the other day, and I found it hard to answer.

gingerninja, Its considered a "large" mortgage when the securing asset is sinking in value whilst listed on the market ;-).

No doubt! But it would be interesting to know what peoples relative views are. For me a large mortgage is anything higher than x3 DTI. But it also depends on what stage of life you are at.

In the multiple Million of $ and before RP makes a deraogotary comment, yes I'm very comfortable with it because every single dollar borrowed is income producing

So the DTI is less than 3 then Yvil!

GN, I'm not new to the game, I was cashflow positive when interest rates were 8.5% so you can guesstimate what it could be now.

BTW, as I have mentioned several times before, I think DTI is a wrong measure because it compares cashflow "I" with financial position "D" which is just wrong. To illustrate my point, lets assume we agree a DTI of max 5 is acceptable, what happens if interest rates were to double? Well the DTI wouldn't change a
one single bit (Debt is the same so is Income) but people surely would struggle to meet their interest payments

Yvil, wasn't trying to suggest you were a n00b. Sorry if it sounded that way. I am genuinely interested in what people might consider to be a big mortgage.
I agree DTI is a crude measure but within the consensus that x3 DTI is sensible/affordable, is also the awareness of variable interest rate history.
If it turns out to be true that low interest rates are the new normal, then the x3 DTI affordability measure needs to be adjusted.

No offence taken gn, I think you're one of the nicest, least biaised and smartest commenters on this site

A large mortgage does not hurt, as rising prices for all Houses, gives one leeway to keep leveraging up to the hilt, borrowing more and more, so inflation takes care of all costs.......until it don't.

So might as well lie, beg, borrow and steal, take out as many mortgages as you can...Banks, need keep the ball and the economy rolling...Pretty Please.

Shop around and be prepared to bargain with the banks - and you'll probably get a rate that's pretty palatable.

And if you're selling a property, bargain with the real estate agents. There's plenty to be saved with a little bit of effort.