How New Zealand's 50 Basis Point Rate Cut Affects Your Mortgage

Recently, the Reserve Bank of New Zealand shocked many by slashing the official cash rate by 50 basis points—double the anticipated 25 basis points. Even more surprisingly, this happened before the latest inflation data was available. Last week, inflation data was finally released, showing a reduction to 2.2%, the first time it’s been within the Reserve Bank’s target range since COVID. This is great news for those with home loans as it signals that interest rates are on a downward trend. However, the next cash rate announcement is scheduled for November 27th, so whether there will be more cuts depends on other economic factors, like unemployment rates. 

How Banks Have Reacted 

Even before the Reserve Bank’s official announcement, ANZ took action by cutting its one-year fixed mortgage rate from 6.09% to 5.59%. Their 6-month rate also dropped to 6.34%. As of now, BNZ and ASB are matching these rates. If your mortgage is with a different bank, don’t worry—other banks are likely to follow with similar adjustments in the coming days. 

Should You Break Your Mortgage to Refix? 

Many of you are probably wondering if you should break your current mortgage and lock in a lower rate. My advice? Be cautious. Break fees can sometimes outweigh the savings from a lower interest rate, and these fees are payable upfront. This makes breaking your mortgage less appealing for most people. 

However, if your mortgage is nearing renewal, you’re in a great spot! When refixing, consider whether to go for a 6-month or 12-month term. If the 6-month rate is significantly higher than the 12-month rate, it might be better to lock in the longer term. Alternatively, you could split your loan—fix part for 6 months and part for 12 months to spread the risk and potentially benefit from future rate changes. 

Tailoring Your Rate Choice to Your Situation 

Your personal circumstances matter too. If you plan to sell your house soon, a floating or short-term fixed rate might be the best choice, giving you flexibility. On the other hand, if you're unsure about your income stability or want more security, a 12-month fixed rate could offer peace of mind. 

Repayment Options: Maximize Flexibility or Accelerate Payoff? 

If your new interest rate is lower than your previous one, you have two options for managing your repayments: 

Lower your monthly payments, freeing up cash flow—this is especially useful if you own an investment property. 

Keep your payments at the same level, helping you pay off your mortgage faster and save more on interest in the long run. 

For New Loans: Choose Flexibility First 

If you're about to settle on a new loan, I recommend opting for a floating rate initially, then fixing it after settlement. This provides you with more flexibility and the opportunity to lock in lower rates once market conditions stabilize, potentially saving you thousands over the course of your loan. 

Boosting Your Borrowing Power 

A lower interest rate doesn’t just reduce your costs—it can also increase your borrowing power. As banks adjust their test rates to align with the market, you may be able to borrow more, even if your income hasn’t changed. However, be mindful of debt-to-income (DTI) ratios. As more people take out loans, banks may tighten lending criteria, so acting sooner rather than later could be a smart move. 

If you have any questions about your mortgage or would like tailored mortgage advice, feel free to reach out. I’m here to help you find the best loan options for your situation. 

Disclaimer: The content in this article is for general information purposes only. Any information, opinions, views, and suggestions provided do not take into account your individual financial circumstances or goals, and therefore do not constitute personalized financial advice. We recommend that you seek advice from your mortgage adviser before taking any action.