It’s not often that the recommended mortgage rate strategy is to float—but that’s exactly the advice being given to anyone heading for a fixed rate rollover (or settling on a new property) in the coming weeks.
Why does opting to float make sense right now?
Our last Official Cash Rate announcement of the year is coming up on 27th November, and it’s expected to be a big one. The general consensus is that another 0.50% reduction is the most likely outcome—although some have argued the Reserve Bank could go even bigger.
Any reduction will flow through to the market relatively quickly—meaning further rate cuts are on the cards before the end of the year. And, by holding off on refixing for just a few short weeks, borrowers should be in a position to benefit from lower rates.
What to do if you’re heading for a fixed rate rollover, or settling on a new property in the next few weeks
Your bank—and typically your mortgage adviser (if you use one)—will contact you 60 days before your loan is due to roll over, encouraging you to refix.
When you get that reminder, don’t be in a rush to lock in a new rate.
If your loan is maturing before 27th November, the recommendation would be to let it roll onto a floating rate in the short-term—which will happen automatically if you haven’t refixed—then locking in once we’re through that next OCR date.
If your loan is rolling over after late November, you’ll want to hold off on refixing until the very last minute, so you can take advantage of better rates as well.
Likewise, for anyone settling on a new property in the next month or so, don’t be afraid to float just until that next OCR cut has trickled through to mortgage rates—then fix after that.
At that point, you might look to fix for a year, or potentially consider a three-year term if those rates have fallen below 5%.
Keep checking in for the latest news and updates on New Zealand interest rates.
