Home affordability on the improve

Monday 27 April, 2009

The current economic environment is extremely challenging, but there is some upside for homebuyers at least. Lower interest rates and falling house prices in many areas have combined to make housing in New Zealand more affordable than it has been for a long time.

The fall in interest rates has made a big difference in terms of household cashflow for many borrowers. For example, this table shows the difference in interest rates and monthly repayments on a $200,000 floating interest rate home loan between April last year and April this year. (Home loan interest rates move up and down in line with the market, so the figures and examples below provide an indication only).

Interest rates and repayments for a $200,000 home loan over 25 years

April 2008		April 2009
Floating interest rate	Monthly repayments	Floating interest rate*	Monthly repayments
10.70% p.a	$1917.00	6.45% p.a	$1344.17

* Current as at 1 April 2009

This table shows that if you took out a $200,000 home loan on a floating rate now, you’d be paying $572.83 less in repayments each month than if you’d borrowed the same amount on a floating rate one year ago. Those on a floating rate at the moment may like to take advantage of this by keeping repayments at previous levels rather than reducing them along with the falls in interest rates (if they are able to). This will help them reduce the principal faster and pay off their home loan sooner.

Of course, interest rates are subject to change, so these examples are indicative only. If you’d like to get an indication of what your repayments may be for different home loan amounts.

Source: National Bank, Home Buyers Newsletter - April 2009