Keeping 'secret' mortgage rates under borrowers' radar

by NZ Adviser07 Mar 2016
There’s one mortgage interest rate banks would rather not shout from the rooftops and that’s the “test rate” they use when calculating whether a borrower can afford a loan or not, according to Fairfax Media. 

This test rate is higher than the mortgage rates the borrower will end up paying, if they pass the test and according to mortgage advisers, the test rates of the major banks run from 7.05% to 7.4%, while floating mortgage rates range from 5.6 to 5.75%.

Loan Market mortgage adviser Karen Tatterson says the public needs to understand test rates, which advisers are already able to access. However, banks do not display them on their websites and 
all the big banks refused to reveal theirs, Fairfax Media reports.

BNZ’s Matthew Nauer said, "When a customer comes to us to talk about a home loan there are many factors we take into consideration.

"And yes, part of that is looking at their ability to make their loan repayments, should interest rates rise, irrespective of the actual current rate. It goes hand in hand with being a responsible lender."

An ASB spokesman said, "Loan decision criteria assess our customer's ability to meet their loan repayments based on likely future interest rates".

If the public were able to view test rates, advisers say the benefits would include borrowers having a more clear-eyed view of what future rates could be. 

That could focus more borrowers on the value of paying off more of their loan while mortgage rates were low.

"I believe that clients need to be made aware that when they are considering their options for borrowing money the interest rates used to calculate repayments are not those the banks use to calculate affordability," Tatterson said. 

Mortgage broker Campbell Hastie from the Go2Guys said looking back, past test rates had provided little guide to where interest rates had headed.

Hastie said test rates were not the only part of calculating a borrower’s affordability, with different banks requiring different levels of surplus after a prospective borrower's monthly costs were calculated. 

They also reflected banks' willingness to lend at different points in time.

"When they take a competitive position in the market, then maybe they will drop the rate," he said.

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