State of the nation

At the end of March 2010 Kiwi households owed over $160 billion on their mortgages. Nearly a third was in floating-rate mortgages (where the interest rate can go up or down at any time).

The other two-thirds was in fixed-rate mortgages (where the interest rate is set for a specific period). Half of these fixed-rate mortgages are due to revert to floating rate mortgages within 12 months. So hundreds of thousands of homeowners have a choice to make: fix or float?

Traditionally most mortgages here have been fixed-rate. But attitudes have changed as a result of the global financial crisis: consumers who signed up to fixed rates of around 9 percent in the middle of 2008 looked on in disbelief when, 6 months later, floating-rate borrowers and new fixed-rate borrowers were offered interest rates of 6 percent or so.

When some of the 9 percent fixed-rate borrowers wanted to get out of their existing contracts and re-fix at the new lower rates, they were hit with what they saw as massive fees. The Credit Contracts and Consumer Finance Act 2003 allows lenders to charge a “break” fee to compensate for the interest they’d lose when loan contracts are broken and re-fixed at lower rates (see our Mortgage break fees report for more information).