Is Now the Time to Fix Your Mortgage? BNZ and ASB Rate Cuts Signal a Shifting Market
A million-dollar mortgage is now $338 cheaper per week than it was at the peak of the rate cycle – a difference of $1,500 a week to $1,162, thanks to falling interest rates. But with BNZ joining ASB in offering a market-leading 18-month fixed rate of 4.45%, is locking in now a smart move, or are further savings on the horizon? The answer, as always, is nuanced, but a key shift is underway.
The Race to the Bottom: What’s Driving Rate Cuts?
BNZ’s recent cuts – 4 basis points to 4.45% for 18 months, 10 to 4.79% for six months, 16 to 4.49% for two years, and 0.4% to 4.99% for five years – follow a similar move by ASB earlier in the week. This isn’t simply about attracting new borrowers; brokers suggest banks are increasingly competing for cash, meaning they’re prioritizing balance sheet strength over aggressive market share gains. The cuts also come on the heels of a surprisingly strong second quarter GDP reading, prompting a 50 basis point adjustment.
Short-Term Gain or Long-Term Pain? Weighing Your Options
Infometrics chief forecaster Gareth Kiernan suggests a slightly contrarian approach. While the 18-month rate is tempting, his modelling indicates that opting for a slightly higher one-year rate now, followed by fixing for two years late next year, could yield better results. He predicts an upwards drift in rates beginning around October, potentially leading to an average rate of 4.59% over three years – marginally better than the estimated 4.75% for two consecutive 18-month fixes.
The Allure of Certainty: Is a Five-Year Fix Worth It?
For those prioritizing peace of mind, a five-year fix at 4.99% is surprisingly competitive. Kiernan’s analysis shows it’s only slightly more expensive than the one-year/two two-year strategy, making the certainty it offers a potentially worthwhile trade-off. However, remember that forecasting is an imperfect science. As Kiernan himself admits, even the experts get it wrong sometimes – his 2015 three-year fix at 6.2% serves as a humbling reminder.
Looking Ahead: What the Experts Expect
The consensus is that interest rates have likely bottomed out. While the pace of increases remains uncertain, the expectation is for a gradual climb. This is influenced by several factors, including global economic conditions, inflation, and the Reserve Bank of New Zealand’s monetary policy. The key will be watching for signals from the RBNZ and analyzing economic data releases, particularly those related to inflation and employment. Understanding the RBNZ’s framework is crucial for informed decision-making.
The Role of Economic Data and Global Trends
The recent GDP figures clearly played a role in BNZ’s decision. Stronger-than-expected economic growth reduces the pressure on the RBNZ to maintain ultra-low interest rates. Furthermore, global trends, such as movements in US interest rates and geopolitical events, can also influence the New Zealand market. Staying informed about these broader economic forces is essential.
Don’t Chase the Absolute Lowest Rate – Find What Fits You
Ultimately, the “best” mortgage rate is the one that aligns with your individual financial circumstances and risk tolerance. Consider your budget, your long-term financial goals, and your comfort level with potential rate fluctuations. There’s no one-size-fits-all answer. Focus on finding a rate that provides stability and allows you to manage your finances effectively. Remember, a small difference in percentage points can add up over the life of a loan, but it shouldn’t be the sole determining factor.
What are your predictions for mortgage rates over the next year? Share your thoughts in the comments below!
