We are starting to see the banks adjust test rates down again!
There must be some confidence that the interest rates are lower and will be for a while as the banks have not just moved the interest rates down, the banks are now lowering the test rates too.
What is a Test Rate?
A banks test rate is a higher interest rate that banks use to “stress test” your ability to make loan repayments if market interest rates were to rise significantly in the future. This is very important with long-term loans like home loans where the banks are assessing your affordability today on lending that you might have for the next 20-years or more.
Who Sets the Bank Test Rates?
The banks are responsible for setting their own test rates, and while these are not always publicly available on the banks websites most good mortgage advisers will know what these rates are. When we say that the banks set these test rates, they must have quite a rigorous process for doing so as these days they need to always ensure that they are meeting the criteria of being responsible lenders.
In many cases Kiwis think that the banks are too tough with what they use, so it’s good news to see banks adjust test rates as it can often mean that you can now borrow more.
