The lowest mortgage rate might not be the smartest deal. It sounds counterintuitive, doesn’t it? Most New Zealanders instinctively chase the cheapest home loan they can find, assuming it’s the key to long-term savings. But some experts say that this approach—while tempting—might not actually give borrowers the best value in the current market. And this is where things get interesting.
When the Reserve Bank recently trimmed the official cash rate (OCR) to 2.25%, it signaled that this could be the lowest point for the foreseeable future. In other words, rates probably won’t drop much further. Almost immediately, wholesale interest rates nudged upward, prompting economists and market watchers to ask the million-dollar question: are we entering a new phase where rates will start climbing again?
Economists at ANZ—New Zealand’s largest bank—believe now might be a good time for borrowers to reconsider short-term rate fixes. Current figures show six-month terms starting from 4.75%, one- and two-year fixes around 4.49%, three-year at 4.75%, and four- or five-year options just below 5%. That narrow gap across terms suggests there’s less to gain from chasing the very lowest headline rate.
ANZ’s team cautioned that it’s still too early to pinpoint exactly when rates might increase, but the key takeaway is clear: the downtrend in wholesale rates has ended. With banks fiercely competing—offering cash incentives to draw in customers—borrowers have plenty of choice. Still, the bank’s economists encourage people to look beyond the surface. Mortgage rates appear to have reached their floor, which could make longer-term rates a smarter bet for those seeking certainty amid shifting market conditions.
The logic goes like this: when rate differences between one and five years are minimal, borrowers should choose based on their comfort with risk and desire for stability. A five-year fixed rate could suit those who value predictability, while others might prefer a two- or three-year term—striking a balance between cost and flexibility. But here’s a thought-provoking twist: could fixing for too long actually backfire if global markets shift faster than expected?
Data from rate swaps supports ANZ’s caution. The two-year swap rate, which reflects where banks expect short-term rates to go, sat at 2.65% before the October OCR cut. It dropped briefly to 2.44%, then rose again above 2.8% after November’s decision. That uptick hints that future mortgage rates might climb slowly over the next year.
ANZ analysts even did the math: the six-month rate would only prove cheaper if the one-year rate dropped to around 4.19% in the next half-year—a scenario they say looks unlikely unless the Reserve Bank cuts rates again. If this really is the bottom of the cycle, locking in 18-month, two-year, or even three-year terms could deliver more stability without much extra cost.
For example, with a market-average three-year rate of 4.79%, fixing for one year at 4.49% would only save money if borrowers could refix next year at roughly 4.94% for two years or alternate 18-month periods at 4.45% then 5.13%. In simpler terms, that’s a gamble on rates staying low longer than many experts expect.
Squirrel’s chief executive, David Cunningham, noted that despite these calculations, most borrowers still prefer the shortest fixes. Even when five-year rates were as low as 2.99%, most homeowners stuck to one-year terms at 2.25%. He suggested rates might now remain steady for a year or so—drifting slightly as wholesale markets fluctuate but without major movement.
CoreLogic’s chief property economist, Kelvin Davidson, added that he’s beginning to reconsider longer-term options himself. He recalled how those who fixed for five years back in 2021 are still benefiting from those low-rate deals today. “It’s not necessarily what I’ll do,” he admitted, “but it’s worth thinking about.”
So, what does it all mean for today’s homeowners? The era of rock-bottom rates may be coming to an end. While grabbing the cheapest short-term deal feels appealing, it might be wiser to play the long game—especially if a small rate premium buys years of peace of mind. But then again, some believe flexibility is worth more than predictability.
Here’s where opinions divide: Would you rather lock in for longer now to avoid future rises, or stay short-term and risk being caught when rates climb again? Which side do you fall on—and why?
