It seems like home loan rates are ever-changing, and no one ever knows for sure whether they are expected to rise or fall until they actually do. Of course, economists predict certain financial events, but they aren’t infallible and often come to opposite conclusions amongst each other.

Rather than focus on predicting interest rates, it’s a good idea to know how banks determine your interest rates. We’ve included some helpful information below.

Customer Deposit Volume vs. Home Loan Rate

Believe it or not, home loan rates are deeply entwined with customer deposit rates. The sheer volume of deposits from customers as well as the cost of getting them can determine what your bank is financially able to afford as a loan amount.

Global Economic Conditions

The demands for lending are growing ever higher, with first-home buyers spending over $1.1 billion last month alone – the highest amount in two years. As a result, banks are continually sourcing money from overseas to meet these demands, with the price tag for doing so varying significantly.

Global economic conditions and geopolitical events can both impact your interest rate. If the funds aren’t available–or not affordable for the bank to purchase–you can expect to receive a higher interest rate.

A good example of events impacting interest rates was the Global Financial Crisis in 2008. Funds dried up and what people could access came at a high price.

Mortgage Term

The length of your mortgage can also make a difference to your interest rate. Most people opt for 25 or 30-year mortgages, which banks need to source funding for both offshore and in New Zealand. Typically, funding comes from debt markets through what is known as a bond programme.

In these cases, the bank offers interest rates at a fixed rate over a period of time in exchange for the funds to give to you.

Have more questions?  We may be able to point you in the right direction. Get in touch to find out how we can help.