At it's last Official Cash Rate (OCR) announcement on November 27, 2024, the Reserve Bank of New Zealand (RBNZ) reduced the OCR by 50 basis points, bringing it down to 4.25 percent. Economists and market commentators suggest that this significant cut reflects the central bank’s strong commitment to stimulating the economy amidst ongoing challenges.
With the drop widely forecast, the main banks signaled that they have largely already factored this pricing into their current rates with rates.
Interest Rates Holding Steady
Following the announcement, several of the main banks dropped their variable rates (floating rates) by up to 70 basis points. Since the announcement, six-month rates have dropped slightly and are currently sitting between 5.99 percent and 6.09 percent, while one-year rates have fallen to between 5.99 percent and 5.65 percent.
For slightly longer terms, 18-month rates are sitting between 5.49 percent and 5.59 percent, and two-year rates between 5.49 percent and 5.59 percent. Three-to-five-year rates have all been held steady and range between 5.55 percent and 5.79 percent.
For those currently sitting on a floating rate, or those with terms coming up for renewal, we recommend speaking with your adviser to understand your options.
Strategic Considerations for Fixing Mortgage Terms
In the current environment of declining interest rates - the Reserve Bank of New Zealand signaled that it is likely to make another 50 basis point cut to the OCR in February - fixing mortgage terms for a shorter duration (such as six months) is likely to be a practical approach. Short-term fixed terms will allow borrowers the flexibility to reassess their options and potentially secure better rates as the market responds to the OCR changes, which are expected to continue trending downwards throughout 2025.
Opportunities to Accelerate Mortgage Repayment
Lower interest rates provide a great opportunity for homeowners to accelerate their mortgage repayments. By maintaining existing repayment amounts, it is possible that borrowers can reduce their loan principal faster, shortening their mortgage term and saving significantly on interest costs over time. This approach enhances financial resilience and builds equity more quickly.
Leveraging a Competitive Lending Environment
The current competitive lending market is advantageous for borrowers, with many banks offering incentives such as cash contributions or special deals for new and existing clients. However, these offers often require careful negotiation and evaluation. We recommend speaking to your adviser who can help you navigate these opportunities and find a solution tailored to your needs.
Looking ahead
The RBNZ’s substantial OCR reduction signals a favourable environment for borrowers, but navigating the lending landscape requires strategic planning. Whether you’re considering refinancing, fixing a mortgage term, or accelerating repayments, our team at Threefold is here to help.
If you are interested in booking a free consultation with one of our team, click here.
The next OCR update will take place at 2.00pm on February 19, 2025.
The content of this article should not be taken as financial advice, or a recommendation of any financial product. These insights are based on current economic commentary, market pricing for interest rates, and our personal opinion. Threefold is not liable or responsible for any information, omissions, or errors present.
