By Adam Ray
Floating home loan rates are at their lowest in 40 years, but mortgage brokers say borrowers should be wary.
The Mortgage Brokers Assocation says lenders are luring people with low rates that could soon rebound.
But the banks say their rates are low because their borrowing costs have come down.
ASB is the latest bank to drop its home loan rates.
But mortgage brokers says rate cuts for short-term loans may benefit banks more than borrowers.
“What they are trying to do is attract clients into certain parts of the fixed-rate market that suit the bank more than customers,” says Ian Webb of the Professional Advisers Association.
Ian Webb says the short-term rate cuts are often marketing ploys, and because they can change quickly, some borrowers might be better off with loans that charge more but last longer.
“They should be looking at how long they need a mortgage for – the full range, not just the cheapest rate,” he says.
Kiwibank started the latest round of rate cuts. The banks says it is just passing on its own lower borrowing costs.
“It depends on the market and where and how we raise our funds as to how long we can keep it out there,” says Kiwibank chief executive Paul Brock.
Competition between banks has driven the floating rates to around 5.7 percent, the lowest since the mid-1960s and a fraction of the 20.5 percent charged in 1987.
Economist Ganesh Nana says economic conditions are volatile, but he expects rates to stay low until next year.
“The underlying message is that there's a lot of uncertainty. We don't know where it is going to go.”
Economists say those on floating mortgages should try to switch to a fixed-rate before the Reserve Bank changes the cash rate. But that is not expected until next year.
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