How the Reserve Bank’s OCR cut will affect you

Written by Money Empire

May 13, 2019

On May 8, New Zealand’s Reserve Bank cut the Official Cash Rate (OCR) to a record low, from 1.75 to 1.5 per cent.

This could help you save thousands in interest repayments if you already have a home loan or you’re planning to buy property soon.

How could the OCR cut save you money?

Often, an OCR cut makes borrowing money from retail banks cheaper. That means if you currently have a mortgage on a fixed rate, refinancing could allow you to lock in a lower rate and pay less interest on your loan.

If you don’t have a mortgage yet and you’re looking to buy, you’re in luck. This rate cut may enable you to secure a loan with a lower interest rate, provided you seek good advice when securing your mortgage.

Keen to find out if you could be paying a lower interest rate and saving money? Give the team at Money Empire a call or an email soon and we’ll make sure you don’t pay a dollar more than you have to.

How does the OCR work?

When the Reserve Bank decreases the OCR, it costs retail banks less to lend you money. This means that an OCR drop is often (but not always) followed by a drop in interest rates from banks.

In this instance, most major banks have already announced cuts to their fixed and variable home loan rates of between 0.05 and 0.15 percentage points. This comes at a time when mortgage rates were already at near-record lows.

The Reserve Bank uses the OCR as a tool to influence the economy, and in this case, they’re hoping to increase consumer spending and inflation. The idea is, in a nutshell, that because borrowing is cheaper, consumers and businesses will spend more. This cut has come as a response to concerns around international trade, domestic economic growth, softening house prices and low business sentiment.

How can you take advantage of lower rates?

The best way to find out if you can benefit from lower mortgage interest rates is to speak to a mortgage broker for expert advice.

With that said, your mortgage is so much more than just an interest rate, so you need tailored advice to make sure yours is structured correctly to help you reach your goals (and save you money).

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