Why The Lowest Rate Doesn’t Always Equal The Biggest Savings

Over the past 12 months, the Official Cash Rate (OCR) in New Zealand has been steadily dropping. That’s good news for borrowers, because it’s flowed through to lower interest rates across most fixed terms. It means many households now have the opportunity to lock in cheaper lending than they’ve seen for a few years.

But here’s the catch: while rates are falling, the real key to saving money and getting debt-free faster isn’t just about picking the lowest number. It’s also about how your loan is structured. 

The Trap of Focusing Only on Rates

A sharp-looking rate can be tempting, but mortgages aren’t one-size-fits-all. Locking in the lowest rate might limit your ability to make extra repayments or restructure your debt if your situation changes. In some cases, chasing the lowest number can cost you more in the long run.

For example, a fixed-rate loan may offer a great headline rate, but if it penalises you heavily for early repayments or changes, you could be stuck with debt longer than necessary.

Structure: The Key to Paying Off Debt Faster

A smart loan structure creates flexibility and options. This means splitting your loan across different terms, using revolving credit facilities, or ensuring part of your lending allows extra repayments without penalty.

Here’s why structure can be just as important as your rate: 

• Flexibility to repay faster: Even if you accept a slightly higher rate on a portion of your loan, the ability to make lump-sum repayments can save you thousands in interest and cut years off your mortgage. This can be especially valuable if you’re in a role where bonuses or commission payments are part of your income, as you can direct those windfalls straight into your mortgage rather than letting them sit idle.
• Adapting to lifestyle changes: A well-structured loan can evolve with you – whether it’s a pay rise, a bonus payout, an inheritance, having flexibility built in means you can use those lump sums to reduce your balance quickly. Without this flexibility, you could miss the chance to put extra money to work for you, keeping your debt higher for longer. It also works the other way too, for example providing you with breathing room when you need it for example if your family is expanding or you are looking to do renovations.

The Power of Offset Accounts or Revolving Credit

When considering your loan structure, it can be useful to consider offset accounts or revolving credit facilities.

An offset account links your savings to your mortgage balance, reducing the amount of interest charged, while a revolving credit works like a large overdraft with interest only charged on the amount drawn down.

For households with strong cash flow or reserves, offset accounts can be incredibly effective. Every dollar sitting in your savings effectively reduces your mortgage interest while still leaving you with liquidity. Over time, this can mean tens of thousands in savings without changing your day-to-day spending habits. 

Revolving credit facilities can also be a smart option for households expecting lump sum payments or variable income. They work like a large overdraft, allowing you to pay down debt quickly with bonuses, commissions, or windfalls while still having the flexibility to redraw funds if needed. For disciplined borrowers, this can be one of the fastest ways to reduce interest and cut years off a loan.

Rate vs. Structure: Which Wins?

The truth is, the best mortgage strategy balances both. A competitive rate matters (as it affects your monthly outgoings) but real savings can also be unlocked through structure and repayment flexibility. 

Think of it this way: a slightly higher rate with the right structure can see you debt-free years sooner.  Meanwhile, a rock-bottom rate without flexibility could keep you in debt longer, costing more in the end.

The Takeaway

Rates are the headline, but structure is the fine print that determines whether you truly win the mortgage game. By focusing on flexibility, repayment strategies, and tools like offset accounts and revolving credits, you put yourself in control – saving more, becoming debt-free faster, and ensuring your loan works for you.

At Threefold, we’re experts in ensuring that you have the right mortgage structure in place to help you reach your financial goals faster, while still being able to enjoy the things that are important to you. 

The great news is that it is never too late to assess and update your mortgage structure to reap the benefits. With rates continuing to fall, now is the perfect time to look at how you can leverage great rates andoptimise your structure.

Plus, if you book a complimentary mortgage, insurance or KiwiSaver review this month, you’ll also go in the draw to win a month’s mortgage repayments on us, up to the value of $5,000, which could also help you take a big step forward in your financial well-being!

To book your free review, 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.