Last reviewed September 30, 2024

Following the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) last month, we have seen a slow, but steady, decline in interest rates. 

Across the main banks, six-month rates are hovering around the high sixes (6.79 – 6.85 percent), while one-year rates are sitting at 6.19 percent across the board and the 18-month and two-year rates ranging from 5.69 to 5.99 percent. With further cuts to the OCR expected prior to Christmas, we expect that rates will continue to fall, offering some welcome relief for homeowners and investors.

With rates likely to continue trending downwards, we are continuing to recommend that most clients consider fixing for six months, although for those looking for stability and certainty, we also believe that the 12-month rate is now also worth considering as most banks are now offering an interest rate of 6.19 percent.

With the 12-month rate sitting around 0.6 percent lower than the six-month rate, it means that the six-month rate would need to be a minimum of 1 percent lower at its expiry (eg. in February) for you to break even. This makes selecting a six or 12-month term right now a 50:50 call – although for those looking for short-term cashflow relief, the 12-month rate may be a better option.

For clients looking for more certainty over the mid-term or who need more immediate cashflow relief, the 18-month rate (which has dropped to around 5.85 percent) may also hold some appeal. But given the likely trajectory of steady interest rate cuts through to the end of 2025, we favour the six and 12 month rates. Likewise, we do not recommend that clients fix for a two, three, four or five year term right now as while rates are slightly cheaper (between 5.59 and 5.85 percent), the rates do not make sense and are likely to cost mortgage holders more over the course of the loan term given the likely interest rate path.

What to do now?

The next OCR update will take place on October 9, 2024 but the market is likely to price in further cuts over the coming weeks. As rates are likely to continue dropping, we are advising that clients hold off on refixing their rates until one-to-two weeks out from when their rates will expire so that they can take advantage of the likely lowest possible rates. For most clients we are advocating that they then fix all their lending for six-months, or alternatively that they split their loan with around 50 percent fixed for six-months, and the remainder for 12-months to spread the risk. 

However, to understand what the right decision for you is, we recommend speaking to a qualified financial adviser prior taking any action. Ultimately, it is up to you need to make your own decision, as no one can predict exactly what will happen with rates (especially in the longer term), but our advisers can assess your circumstances and provide advice based on the best course of action.

If you are interested in booking a free one-hour consultation with one of our team, click here.

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.