The “mortgage wars” are heating up again with some sharp home loan interest rates being offered as well as the cash contributions with home loans.
Which bank offers the best home loan interest rates?
This is a question as a mortgage broker that we get asked all the time.
Some people believe it is Kiwibank due to the fact they have a “Home Loan Guarantee” where they state; Kiwibank guarantees you the lowest cost home loan, but when you read the terms of this guarantee you see there are a few flaws within it;
- The guarantee only apply’s to the banks listed; ANZ, ASB (but not its Bank Direct division), Bank of New Zealand and Westpac.
- The guarantee only apply’s to the interest rates offered to the general public in the ordinary course of the business – ie: advertised rates
- You can only claim if your comparison is over the first six years of your Kiwibank Home Loan
What this guarantee fails to recognise is firstly that the four banks listed will typically offer lower rates than those that are advertised, and that there are other banks that often offer better home loan interest rates.
Last week ASB and Sovereign Home Loans reduced their interest rates giving them rates like 5.99% for 4-year fixed terms which compares to 6.99% with ANZ, 6.59% with BNZ, 6.79% with HSBC, 6.59% with Kiwibank, 6.65% with TSB and 6.79% with Westpac. This is great if you have an investment property or want a 4-year rate for your home loan, but they are still more expensive that some Kiwi-owned banks with their other fixed rates. SBS Bank still lead the way with the 2-year fixed rate home loans offer of 5.49% compared to most banks who are still offering a special rate of 5.75%.
What About Cash Contributions With Home Loans?
For some time banks have offered cash and other incentives to help lure customers.
While everyone like to receive cash and gifts, many mortgage brokers warned customers that they needed to look at the whole loan and not be bribed with incentives to later find out that the home loan is really not competitive. The reality is that banks are still recording record profits, so while it is good to get these cash contributions with home loans somewhere someone is funding that cash and it probably means that they are not giving you the sharpest interest rates.
Most banks are currently offering $2,000 – $3,000 for standard home loans, but bigger loans or those covering multiple properties will often get more.
These sort of cash contributions with home loans are not sustainable but while the market is so competitive they will no doubt remain.
Banks Lock-In Clients
With these large cash contributions with home loans the banks are making people sign a deed of acknowledgement to ensure that they stay with the bank for a period of time.
For the client this raises some questions;
What happens if the bank under-perform?
Once you have agreed to keep your home loan with a bank you may get frustrated with the bank for any number of reasons and if you have signed a deed (like the one on the right here) then you may have to refund that cash contribution in full should you leave the bank.
Bank’s can change credit policy.
As mortgage brokers we often see change to the credit policy within a bank meaning you may be forced to change banks.
Should you be penalised because the bank under-perform or change their credit policy?
Banks Can Make Mistakes Too
Did you pick up the mistake?
We recently were shown the deed of acknowledgment (just above) and noted that Westpac have agreed to credit a sum of $75,000 to a clients account in consideration for the loan.
This is the largest cash contribution that I have seen!
Unfortunately this is an error, and I am guessing that Westpac will not honor this.
It would be nice if the banks were giving cash contributions with home loans like that.