How to manage rising home loan interest rates

With increases in inflation, it’s not surprising that prices at the petrol pump, supermarket – you name it – have all headed north. This can be an understandably concerning time, especially if this is your first experience of a rising rate environment. That’s why we’ve put together a few ideas that could help keep you on top of things.

There are many reasons as to why interest rates increase or decrease, but two of the biggest are changes to the Official Cash Rate (OCR) and wholesale interest rates. 

The OCR is set by the Reserve Bank of New Zealand (RBNZ), and is the rate the RBNZ charges commercial banks, like ANZ, to borrow money from them overnight. The OCR has a major influence on all interest rates in our economy, including wholesale rates, and is the main tool the RBNZ has to control inflation. It is reviewed seven times a year and is set by the RBNZ in accordance with their inflation target.  

Wholesale interest rates refer to the rates that banks and large financial institutions charge each other to borrow large sums of money over a fixed term. Wholesale interest rates determine the interest rates that banks are able to offer customers, so retail home loan and deposit interest rates will often move in line with any changes to them. Although there are many factors that feed into the level of wholesale interest rates, expectation as to where the OCR will be in the future is a big driver.

Over the past year inflation has increased rapidly, prompting the RBNZ to lift the OCR. With the rise of the OCR, banks’ borrowing costs have increased, which is why we’re seeing home loan interest rates rising too. 

The combination of rising inflation and increased interest rates means higher costs for home loan customers. The OCR generally has a more direct impact on floating rates, whereas fixed term interest rates are more influenced by where the market thinks the OCR will go in future so the impacts aren’t often felt until customers need to re-fix their loan. Because of this, it’s important to keep informed as to where home loan interest rates might go, so you can plan ahead. 

Getting your home loan structure right is a great start. With a considered mix of loan types, you could pay less overall interest, potentially shaving years off your loan. So, if you’re about to take out a home loan, or you’re nearing the end of your current fixed term, take a look at the different ways you could structure your loan to work best for you.

Being prepared is half the battle. Remember with ANZ you can lock in an interest rate 60 days before your current fixed rate period ends, regardless of whether you’re currently an ANZ Home Loan customer or not. This could give you certainty if you are concerned about the possibility of rates rising further. To lock in a rate, you’ll need to complete a Reserve Rate Agreement. If you cancel or change your Reserve Rate Agreement you may incur a Non-utilisation Recovery—.

If your home loan is about to come off its current fixed rate period, get a heads-up on what your new repayments could be by using our easy calculator.

If your payments are going to go up significantly, this might be a good time to look at your budget. Have a think about whether you could go without a subscription or two. Planning, budgeting and taming other debts are important for your financial wellbeing at any time, but even more so now. Have a look around our other money hack articles for ideas and quick tools that could help.

If your repayments are monthly, consider whether you could make them fortnightly instead. This means you’ll repay slightly more over the year, as you’ll be paying the equivalent of one extra monthly repayment a year. And if you’re in a position to make an additional lump sum repayment, this could be a really smart move too. Check out these and other ways to reduce interest costs.

If you can afford it, paying off your home loan faster could help you pay less interest, especially if rates keep rising. Arm yourself with a copy of our 'Pay Off Your Home Loan Faster' handbook or attend our free Property Unlocked 'Pay Off Your Home Loan Faster' webinar. Get a copy of the handbook (also available in-branch) and find out about our up-coming webinars.

Of course, it’s impossible to cover everything for everyone in one article. That’s where our ANZ Home Loan Coaches can help. To discuss your situation, especially if you’re feeling concerned by the prospect of rising interest rates, please reach out. Simply book a one-on-one appointment in-branch, or call us on 0800 269 4663.