By Emma Jolliff
The Reserve Bank has lifted the official cash rate (OCR) by a quarter of a percent, to 3 percent.
That means the 628,000 homeowners who have floating mortgages will have to pay more.
It's the second hike this year, and rates are tipped to rise further.
The number of home owners with variable mortgages is at an all-time high. Nearly half of all of the country's 1.3 million home mortgages are now on floating interest rates, up from a quarter two years ago.
As predicted, the Reserve Bank today lifted the OCR to 3 percent and warns more rises could follow.
Chris Naziris is in the market for a house in Wellington and, despite the risk of further rate hikes, says floating rates are just too good to pass up
"Why would I pay 7.5 percent when I can pay six?" he asks.
But will the rise encourage more people to fix?
"It will make some difference to people," says financial director Graham Goodisson. "They will perceive a rate rise as the sky is falling, forgetting that in the height of the market the variable rate was at 10 and over 10 for some lenders."
The Reserve Bank's latest figures show the average home mortgage is around $200,000. If your mortgage was at 6 percent, and the banks pass on the full increase, fortnightly payments over 25 years would rise from $594.40 to $608.57.
David Kneebone from the website Sorted says it's just one of many financial changes this year people need to budget for.
"It could mean an increase of $28 per month," he says. "Add that to car registration increases, cigarette increases, what's coming through from the ETS, GST's going to go up to 15 percent in October."
But he says tax cuts will help. So what's his advice?
"A mix of fixed and variable is always a safe option."
The Reserve Bank says further increases are likely to be more moderate than projected in June because the global economic recovery is still fragile.
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