It's the "test rate" banks use when calculating whether a borrower can afford a loan.
The test rate is higher than the mortgage rates the borrower will pay, if they pass the test.
PETER MEECHAM/FAIRFAX NZ
Mortgage broker Karen Tatterson says the public should understand mortgage affordability "test rates".
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Currently, the test rates of the major banks run from 7.05 per cent to 7.4 per cent, brokers say.
That compares to floating mortgage rates of 5.6 to 5.75 per cent.
The test rates are used internally by banks when calculating whether a prospective borrower has the income to service the loan
in case mortgage rates rise.
The banks say the use of test rates that are significantly higher than mortgage rates shows they are responsible lenders, but the secret rates are also an indicator to borrowers of how tomorrow's mortgage rates may be different from today's.
"And yes, part of that is looking at their ability to make their loan repayments, should interest rates rise, irrespective of the actual current rate. It goes hand in hand with being a responsible lender."
An ASB spokesman said: "Loan decision criteria assess our customer's ability to meet their loan repayments based on likely future interest rates".
Mortgage brokers are split on whether the public would benefit from banks publishing the "commercially sensitive" test rates.
The benefits would include borrowers having a more clear-eyed view of what future rates could be.
That could focus more borrowers on the value of paying off more of their loan while mortgage rates were low.
Mortgage broker Karen Tatterson from Loan Market said the public would also benefit from knowing more about how banks assess loan applications.
"I believe that clients need to be made aware that when they are considering their options for borrowing money the interest rates used to calculate repayments are not those the banks use to calculate affordability," she said.
It could help dispel the notion that when mortgage rates fall, people can automatically borrow more as their repayments would be lower.
Tatterson said knowing that different banks had different criteria - for example the test rate for the ANZ is 7.05 per cent currently compared to 7.4 per cent at ASB - could encourage people to shop around, or use a mortgage broker to do it for them.
Too often people who had been knocked back by their bank did not try elsewhere, Tatterson said.
Mortgage broker Campbell Hastie from the Go2Guys said the test rates of the past had provided little guide to where interest rates had headed.
When mortgage rates were over 9 per cent in 2008, test rates were higher, but hindsight showed the actual rates did not reach those levels in the following years.
Though regularly reviewed, test rates have tended to move in relatively infrequent steps, reflecting that at least part of their setting reflects medium to long term bank expectations for interest rates.
ANZ said the rates also took into account movement of interest rates through interest rate cycles, which again could be something borrowers should think about.
But Hastie said test rates were only one part of the affordability calculation- for example different banks may require different levels of surplus after a prospective borrower's monthly costs were calculated.
They also reflected banks' willingness to lend at different points in time.
"When they take a competitive position in the market, then maybe they will drop the rate," he said.
Hastie said prospective borrowers were only interested in getting a loan, and their monthly repayments, if they got it.