On February 12, 2020, the Reserve Bank of New Zealand (RBNZ) announced to keep the Official Cash Rate (OCR) at 1%.

Since then, we have been receiving many phone calls from our clients.

Some people might be wondering, with the latest OCR development, what are the New Zealand mortgage rates forecast for the year of 2020? Are New Zealand mortgage rates going up or down in 2020? Given the current circumstances of mortgage rates, how long should I fix my mortgage for in 2020?

That’s why in this week’s blog, we’ll update with you the current home loan interest rates (February 2020) and the trend for New Zealand interest rates in 2020.  We’ll also guide you on what aspects you need to consider when it comes to how long to fix mortgage for in 2020, so that you can make a informed decision.

How long should I fix my mortgage for in 2020?

Video Timeline:

1. February 2020 mortgage rates update 00:48

2. NZ Interest rates forecast - Will NZ mortgage rates go down or up in 2020? 02:00

3. How long should I fix my mortgage for in 2020? 03:16

4. How to reduce your mortgage interest costs? 06:03

February 2020 mortgage rates update

The OCR remains unchanged at 1%, due to current strong economic performance. It seems most likely that the OCR would keep no change for the next 18 months, or even for the next two years, as predicted by some economists.

After announcement of the OCR, there is no significant change on the current New Zealand mortgage rates. - Only two banks responded, one increased their two-year fixed term rate slightly and the other dropped slightly. Besides, all other fixed term home loan interest rates largely remain the same.

The one-year fixed term mortgage rates are still the cheapest home loan rates.

The New Zealand subsidiary of Chinese banks keep their 3.15% of one-year fixed term rate unchanged, remaining the lowest mortgage rates in the New Zealand interest rates history. New Zealand major banks price their one-year fixed term rate at 3.39%.

NZ Interest rates forecast - Will NZ mortgage rates go down or up in 2020?

As mentioned earlier, the OCR is more likely to stay as it is for the next, at least, 18 to 24 months.

However, we can't rule out the possibility of some small adjustments. Now we all know there's a Coronavirus going around at the moment, and the latest uncertainty comes in the form of Coronavirus. It's still too early to say what the impact is for New Zealand’s economy. If it gets really serious outbreak, the OCR potentially will be reduced to boost economy by encouraging more spending. That will in turn lower the interest rates.

On the other hand, if New Zealand house prices keep going up, following the momentum we’ve seen after the New Year, then the OCR might increase to compress the inflation. So, there's a possibility that OCR can either go up or down. But it won't be significant and more likely to be the same in our view.

How long should I fix my mortgage for in 2020?

Is a one-year fixed rate the best option for your home loan? Or is it better to fix your mortgage for longer?

Our suggestion is, when it comes to how long to fix mortgage for in 2020, fixing your home loan with one-year fixed term still gives you the best value. Not only because the one-year fixed home loan rate is the cheapest, but also the one-year rates are very likely to stay the same for a year, as predicted. So, if you fix your home loan with one year, then it will give you a chance to review what you need to do after the one-year fixed term ends.

However, fixing your mortgage with a one-year term is not the best option for everyone. Not only should you set your goal of reducing the interest costs over the whole loan repayment term, but also, in some situations, you might require more certainty and a strategy that minimises the risk of loan repayment.

Your cash flow could be the top one factor that you need to be cautious about when you choose your mortgage fixed term. This happens when:

Your loan amount against your property is quite large. Say you only have one property, like your family home, and your home loan is over half a million dollars, we highly recommend you split your loan into two parts and make sure that they come off at different times. If you are a property investor and your loan is probably over a million or more, then it's best to consider splitting your loan into different fixed terms. By doing this, you minimise your cash flow risk, in case the interest rate increases, you still give yourself some time to adjust because not your entire loan comes off at the same time. So, the cash flow increase won't have a significant impact on your cash flow if you have everything come off at different time.

Secondly, if you expect your family cash flow to be tight for the next one or two years, for example, you may have a new born and your partner probably stays at home for at least a year, then your household income will decrease and your spending will increase. So, your overall cash flow will reduce. Should the interest rate goes up, then it will have a negative impact on your cash flow, which will give you some stress you could potentially avoid. There are some other situations involved, such as you change your job, start up a business, or undergo any other major life events that may cause your family net income to decrease in the next two years, your cash flow might change as well and you need to be careful.

How to reduce your mortgage interest costs?

Interest rate is one thing but how you're going to pay your loan is also very important. 

Say you plan to purchase a new car and you need finance. You probably have two options. One is, you get a car loan from the car salesman, probably with a 10% of car loan rate and 5 year of loan repayment term. The other option is, top up your home loan to buy a car. Your bank will give you the interest rate of less than 4%. But if you don't ask, they'll probably default it into a 30-year loan term. You probably end up paying much more over 30-year at 4% rates than if you paid it off over five years at 10%. So, when it comes to how to reduce your mortgage interest costs, it's not just about reducing your interest rates, but also about the right strategy of how you repay your loan.

It is crucial to engage a professional mortgage broker to seek expert advice. We are happy to help you review your current situation and find the best solutions for you. Call us at 09 930 8999 to get a free, no obligation loan review for you, so that you can prevent the above scenarios from happening.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. If you’re unsure about what to lock in for your mortgage, call 09 930 8999 for a no-obligation chat with our adviser.

Other blogs that you might like:

How to save $300k interest on the home loan? (case study)

Should I apply for my home loan from China’s banks to capture the lowest mortgage rates of 3.15%?

How to invest in New Zealand property market in 2020?