Breaking mortgage contract could pay

AUCKLAND: New Zealand home owners could save a healthy wad of cash by breaking their home loan deals and refixing on currently record low interest rates.

It comes as ANZ triggered a mortgage war last November by becoming the first major bank since World War 2 to offer a oneyear fixed term 3.95% mortgage rate.

However, the competition has heated up since then, with three of the four major banks — ASB, BNZ and Westpac — now offering 3.95% rates over longer threeyear fixed terms.

Canstar — a company specialising in comparing financial services — says the mortgage war has made it more feasible for New Zealanders to weigh up whether they will save money by switching lenders.

It used two ‘‘indicative case studies’’ to highlight the potential savings and costs of switching.

The first instance looked at a borrower who took out a twoyear fixed home loan six months ago, when the average twoyear rate was 4.52%.

‘‘If this borrower switched to the minimum twoyear fixed rate of 3.99% currently available on the market, and paid a break fee of approximately $1800, they could save more than $1300 due to interest cost savings,’’ Canstar’s analysis said.

However, not everyone would save. A borrower who took out a new home loan at the start of this month on a twoyear rate of 4.37% — the average at that time — would save $878.94 in interest charges on the new 3.99% rates.

However, they would also incur an $1800 break fee, meaning they would be worse off by $921.06.

Canstar NZ general manager Jose George said borrowers needed to do their homework and be prepared to haggle.

The record low interest rates come as house sales have slumped in recent months.

There were 963 house sales last month — about 100 sales less than the same time last year — while February was especially quiet, with 474 sales, real estate agent Barfoot & Thompson reports.

This, together with tougher lending rules designed to ensure those taking out home loans can afford them, has left the banks with fewer new customers.

It has led them to compete fiercely for new customers and to try to steal away customers from each other.

Amid the cut and thrust of this mortgage war, Canstar has picked out ASB as its Bank of the Year — Home Loans.

It said ASB had not only offered valueformoney home loans but had a wide range of public housing market reports and education and budgeting tools, such as mortgage repayment calculators available.