# Competitive Mortgage Rates

With the level of competition in the mortgage industry, and protective consumer regulation, it's hardly surprising that nobody is being ripped off. However, there are lots of ploys and tricks to entice customers from one bank to another, and to promote one product in favour of another.

We applaud the healthy competition and we enjoy bringing you well researched competitive deals. That's because there is a bit more to it than just interest rates.

### Cheap versus competitive

It isn't always practical to chase the lowest interest rate because the cheapest isn't always the best or the most suitable.

An interest rate is one measure that allows people to make comparisons. However, the danger is that 'other costs' are hidden so comparisons cannot be made easily or accurately. But the 'trick' in cheap promotional interest rates is that people believe that they have made a comparison which can be trusted.

### Beware of the snake oil salesman

This is our warning to beware of exaggerated marketing

There is a lot written about the savings "you will make" with the cheapest interest rate versus its not-as-cheap competitor. We often see the results if improbable calculations which "prove" savings of many thousands of dollars over the life of your loan. Beware.

Organisations do this because it suits their purpose, which may be selling their home loans, or simply being dramatic to attract attention. While these calculations should be mathematically correct (and we can check them if you like), it is the assumptions which are flawed and make the results quite improbable. What is not mentioned is that the calculations ignore the probable realities of any home loan. This is done because it makes the calculations simple and the results more dramatic.

## Please note

We too are guilty of using this methodology to demonstrate a point in our Loan Repayments Calculator. The calculations are accurate and help to demonstrate a point but the "savings" are more dramatic than is likely in the real world - for reasons we explain below.

#### Facts ignored:

- 30 year fixed interest rates are not available here. Therefore, the differential is not guaranteed for 30 years - the reality in a competitive market is quite different.
- The average term of a home loan is much less than 30 years. Therefore it is meaningless to extrapolate an improbable 'saving' for 30 years to prove the benefit to you - it is far from reality.
- New Zealanders tend to split their home loans between fixed interest rates (about 80%) and floating interest rate products (about 20%). Therefore, it is somewhat misleading to demonstrate savings based only on floating interest rates (which tend to have the greatest rate differential).

#### Reality check:

- We think it is impractical to plan much more than 3 years at a time.
- We also think it is
*almost*misleading to show figures which "prove" savings based on unrealistic fundamentals. We prefer to use more likely (though less dramatic) time horizons, like 1 to 3 years. We think this gives better perspective to the impact of interest rate differentials - because it is less biased toward the improbable. - Although we think floating interest rates are sometimes under-utilised in New Zealand, we prefer to use real market comparisons which generally supports at least 70% weighting in fixed interest rates (on average over time). Fixed interest rates have been the battleground of the price wars between banks over the years, so the rate differentials are relatively low. This does not suit comparisons to produce dramatic results (55 cents per day is not a dramatic saving).

Per $100,000 | ||
---|---|---|

Rate differential | Savings per year* | Daily equivalent** |

-0.05% pa | $50 pa | $0.14 per day |

-0.10% pa | $100 pa | $0.27 per day |

-0.15% pa | $150 pa | $0.41 per day |

-0.20% pa | $200 pa | $0.55 per day |

* Interest only **365 day year

### Don't sweat the small stuff

Our reality check shows you the savings per $100,000 based on an interest only calculation and using the interest rate differentials listed, which are a fairly common representation of rate differentials among the banks.

It is important to retain a perspective when comparing interest rates because, in reality, you may not be saving much based solely on a comparison of interest rates. A poor choice of lender (based on a cheaper rate) could be more costly than a well-matched fit with a lender whose credit criteria is most likely to accommodate your needs over time.

Interest rates are one significant factor in the mix that helps to determine suitability. However, there are other factors and some subjective aspects which may give one lender an advantage over another.

We will ensure that interest rates, both at the outset and during the life of your loan, are competitive. This is just one of the benefits of dealing with a mortgage broker.

### Flexible home loans with competitive rates

Among the many things we do is to offer you pre-qualified choices in a very competitive market, so that you are able to make well informed decisions.

Home loans are a competitive sector in the banking industry, and interest rates between the main players are generally very similar.

We follow interest rates closely so we know what is on offer around the banks and others in the industry. We also know that there are some significant differences in credit criteria, product rules, fees, and charges between the main players in the industry. These points of difference are not promoted in a competitive manner because they are difficult to understand and to compare - so competitive promotions are generally restricted to interest rates.

We cannot promise to always offer you the cheapest rate in the market but our panel lenders represent some 70% of the market, so we can promise to offer you very competitive products every time.