Take your pick of mortgage packages

Press, 1 June 1988, Page 16

Take your pick of mortgage packages

In Residence

by

Sarah Sands

A decreasing interest rate is only one of the incentives being offered by financial institutions to entice customers in an increasingly competitive environment In recent weeks the institutions have not only dropped their interest rates considerably, many have introduced new mortgage “packages.” These offer a range of flexible mortgage deals including variable payments to suit the customer; transferring the mortgage to a new property; and “topping up” the mortgage to transfer to a new property or allow other purchases to be made.

However, the most controversial incentive to be introduced to the market is the fixed interest rate. Both Postßank and the National Bank offer fixed mortgages. Postßank’s rates range from 16.25 per cent for a one year review term to 15.75 per cent for a three year term. National offers a

wider range with 16 per cent for one year through to 14.75 per cent for a seven to 10 year review term.

Stephanie Robey, the public relations manager for the National Bank, says that in spite of the criticism of the fixed interest rates, particularly that for the longest term, demand has been high. Since the bank introduced the fixed rates 10 days ago, 50 per cent of the new housing loans have taken the 14.75 per cent for the seven to 10 years. “They are being taken for the same reason National has in the past given people table mortgages — people want affordable monthly outgoings.” While' people may have paid more in the long term for their table mortgage, they knew what their monthly out-goings were which was something they did not know with a straight mortgage. “Customers are saying

about the new fixed rates — T know I can afford this. Whether the rates move up or down does not concern me because I know I can afford this amount.’

“People are going for the benefit of knowing what their out-goings are so they can budget for Whatever period they take the mortgage out for." Stephanie Robey says that the customers make the choice for themselves: “We give them the options, and they decide.”

All of the other institutions counsel against the fixed interest rates. They say that in times of a volatile market, with interest rates falling, the danger of being caught paying more than the market rate is too great. Tony Kunowski, corporate affairs manager of the United Building Society, says his bank has done some calculations Which show that the probability of interest rates dropping so that the fixed rates become unattractive

are “very, very high." “Within the space of a year, someone with a fixed interest rate will be paying 2 to 3 per cent more than what the floating rate will be." John Laird, manager of new services at Trust Bank Canterbury, says Trust Bank .does not offer fixed rates but would make them available if someone wanted and insisted on them.

“However, we would counsel against if right now because people could find themselves locked into a rate for many years when the market rate is much lower.” John Laird asks where were the fixed rate deals when interest rates were going up? It’s a question also raised by Ray Attfield, chief manager lending administration at the Bank of New Zealand.

Ray Attfield believes

that fixed rates would probably disappear from the market if the interest rates started to rise again.

He says the BNZ would not recommend fixed rates unless there was a much greater gap between the current floating rate and the fixed rate. “Economists predict that interet rates will be 3 to 5 per cent lower in seven to 12 months. To lock yourself into a rate

now only 1 to 2 per cent below the existing rate is not much of a gamble.

“Fixed rates are wonderful when the rates are moving upwards, but I would not take one out at present.” However, he believes the fixed rates may be useful for people contemplating buying a small business. “I can see someone buying a corner store or manufacturing business would love to have a fixed rate for three years simply so they knew where they were. “They miss on the advantage if rates fall, but they are protected against rates rising while they are getting established.” The BNZ is contemplating bringing more flexibility into its mortgages, but fixed rates would not be among them, says Ray Attfield.