If you have a loan due to be refixed then it might be a good idea to wait until the OCR announcement on the 19th February or even a few days after that to see how the banks react.
We are expecting a drop of 0.50% to the OCR and that should translate to a drop in the floating interest rates. It does not necessarily affect the fixed home loan rates directly as they are set by the banks and based on the cost of money to the banks and the competitiveness of the market.
Generally the fixed rates will drop following a drop in the OCR, but not always to the same extent. As mentioned, the fixed rates are reliant on what the banks need to pay to get the money. Banks source money from within New Zealand (deposits) and from offshore and therefore priced in line with the International Money Market which is based in the United States of America and therefore is heavily influenced by the US Bond market.
It’s also important to remember that when interest rates are dropping you want to fix your mortgage at the last possible minute in the hope that you will get the lowest possible interest rate.
What has the Reserve Bank done, and what is expected?
The Reserve Bank dropped the interest rates by half a percent (0.50%) in November 2024 which was a widely anticipated move. But they also highlighted that there is a very good chance that rates will drop in February when the OCR is announced again (on Wednesday 19th Feb). The expectation is it will drop another 0.50% and may drop again in April.
The OCR is now currently sitting at 4.25%. So if you had those two drops by half a percent (0.50%) and then another quarter of a percent (0.25%) we could be sitting at 3.50% by April. And that’s pretty close to where most commentators think the OCR should be, at a range of 3.00% to 3.50% and if that does happen we would be expecting to have fixed rates at under 5.00% which would be welcome news to anybody that has a mortgage.
What should you do today?
Our suggestion is to hold off refixing your loans right now, and that means they would go onto a floating rate for a short period. You should ask your mortgage adviser to negotiate a discounted floating rate for you while you wait.
You should also use this time to review your finances, see if there are any areas that you could improve on and make sure that you have a strategy moving forward.
A little bit of planning now can make a huge difference to your finances later.
Do you have a strategy?
Not everybody has a mortgage strategy. A lot of people have always dealt with the bank, and banks are not big on strategy. Banks like to keep things really simple, and often people have all of their lending lumped into one single loan.
That’s definitely not what’s normally recommended. It’s always a lot safer to split your lending across two or three loans, so that you never have all of your mortgage coming off fixed at any one time. That also gives you the ability to increase your payments on some of your loans, especially when interest rates are lower. While we say increase your repayments, it may be that you just don’t drop your repayments as interest rates reduce.
Doing this can help you pay your mortgage off years earlier, and of course save yourself thousands of dollars.
If you’re unsure about the strategy, just reach out. It’s something we do a lot of. It’s a simple conversation, and we can restructure your lending to suit your situation. Also, with refixing don’t forget to reach out to an adviser like myself as we can deal with the bank on your behalf and make sure that they give you a good honest interest rate.
Best of all, it costs you nothing to have an adviser helping as the banks do pay us for doing the refixes on their behalf.
In the meantime, I hope this quick update has been useful. Please feel free to share it with anybody else that you know that just likes to keep up to date, as we continue to pop updates on here, and therefore it’s always a good place to just pop back to before making any financial decisions.
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