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> Variable
or Floating Rates |
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This type of interest
rate can move up or down in relation to the Reserve Bank of NZ’s
monetary policy. The rate usually increases as the economy is growing
and reduces in periods of slow national growth. To give you an
indication, ASB’s floating rate in the period of 1996 – 2000
moved between 6.5% and 11.5%. The 5 % variance between the high
and low would affect payments on a $100,000 by almost $200 per
week. However, you can make lump sum repayments or increase your
weekly payments without penalty. With some banks you can even redraw
these additional funds if required. |
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> Fixed
Term Rates |
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This type of interest
rate is fixed at the time the loan is taken out and remains at
that rate for between 6 months and 7 years. The longer the term
of the fixed rate, the higher it usually is. At the expiry of the
fixed term, it will automatically roll over to the rate at the
time for another period of the same length. Alternatively, you
can opt to change to the variable rate or another fixed rate but
for a different term (fees may apply). During your fixed term you
cannot pay any extra on your loan or repay your loan in full without
incurring a penalty fee, although some banks allow you to increase
your payments by a certain percentage. |
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> Capped
Interest Rates |
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This type of interest rate acts like variable rate
but with a built in limit on how high it can go up to. It cannot go
up altough it will drop if the variable rate drops below your rate.
It has the flexiblity to repay faster or lump sums without penalty. |
