With headline inflation moving in a downward direction, it’s widely predicted amongst NZ’s major banks, that the OCR is unlikely to increase further. As a result, OCR cuts are expected to occur in the second half of 2024 to early 2025.
With this is mind - how do you approach refixing your mortgage?
The ‘best’ mortgage rate/ term chosen, should be tailored to your own needs and goals. A good mortgage strategy considers the following:
Your tolerance for uncertainty.
Personal/ household cashflow.
Your ability to deal with changes to your mortgage repayments in future as economic conditions change.
Ultimately, do you want more flexibility or certainty?
Floating rates and shorter term fixed-rates (6-months or 1-year) will provide you with more flexibility if you prefer the ability to review your mortgage structure on a regular basis. With this strategy, you are relying on interest rate cuts to occur in 2024. This approach also means your mortgage repayments will be higher in the short term so you can take advantage of interest rate cuts IF they are to occur.
Fixing for longer term rates (2-years plus) provides borrowers with greater certainty. Current interest rates are lower for long term rates than short term rates. If you have tight cashflow or you don’t have much tolerance for uncertainty - you may prefer long term fixed-rates.
If you want a combination of flexibility and certainty - you can take advantage of a risk management strategy called ‘Interest rate averaging’. This strategy is where you can split your mortgage into multiple portions - each with it’s own term and rate - balancing flexibility and certainty.
No matter which strategy you choose, there is always a tradeoff/ risk.
In this case, it is important to weigh up the flexibility of shorter interest rate terms and the likelihood that interest rates will drop this year vs the certainty of having mortgage repayments for a longer period of time.
To make an informed decision that best aligns with your needs, have a chat to a trusted Mortgage Adviser (aka Mortgage Broker).
Disclaimer
The information contained in this article is general information and is not intended to be financial, legal or tax advice. Vive Financial Services Limited and Jith Rajenthiram accept no liability for any loss caused as a result of any person relying on any information in this guide. Before making any financial decisions, you should consult a mortgage adviser or an appropriate professional.
