Many borrowers in New Zealand are currently facing pressure as their loans come due for repayment, and they worry about their ability to pay back their loans on time. With the current high interest rates, borrowers who are accustomed to low rates find themselves in a stressful situation, as repayment amounts increase significantly, adding more pressure.

The most frequently asked questions by borrowers revolve around how to ease repayment pressure and how to refix their loan interest rate. In a previous article titled "8 Ways to Help You Relieve Repayment Pressure," we discussed strategies to alleviate this pressure. In this article, we will focus on the current interest rate situation and future trends.

It's important to note that the following information is intended for general purposes only and does not take into account your specific financial situation or goals. Therefore, it is advisable to seek advice from your loan advisor before taking any action.

Currently, mainstream banks in New Zealand offer 6-month and 1-year fixed-term interest rates around 6.74%. The rates for 18-month and 2-year fixed terms are slightly lower, at around 6.69% and 6.49%, respectively. The 3 to 5-year fixed terms have the lowest interest rates, at less than 6%.

The Official Cash Rate (OCR) typically directly affects floating and short-term interest rates, such as the 6-month and 1-year rates. Economists predict that the OCR may rise once in May. However, recent strong employment data suggests a saturated labor market with a lack of productivity gains. Additionally, the recent increase in net immigration numbers will contribute to rising demand, which could impact inflation. Therefore, economists predict that the rate hike may not be a one-time occurrence, and short-term fixed rates may continue to rise for some time.

The 18-month and longer fixed interest rates are influenced by New Zealand banks' borrowing costs from overseas. Recent increases in the 18-month and 2-year rates are connected to an unexpected interest rate hike by the Australian central bank. However, economists predict that the medium and long-term interest rates have reached their peak and are unlikely to rise further.

Looking at the long-term fixed-term interest rates of 3 to 5 years, banks have already lowered rates in this category, indicating a continued downward trend in long-term interest rates.

Considering all these factors, while the interest rates for 3 to 5 years are currently the lowest, it's important to note that future interest rates may continue to decline. Moreover, opting for long-term fixed rates may not be the best choice if you anticipate the need to break your loan early or if you have plans to sell your house. On the other hand, the 6-month and 1-year interest rates are relatively high and show an upward trend, making short-term fixed rates less cost-effective unless you plan to repay or sell the property soon.

In my opinion, choosing an 18-month fixed term is a more appropriate option. If the two-year rate is also low, you can consider diversifying risk by allocating some funds to the two-year fixed term.

Ultimately, it is crucial to make the best choice based on your personal situation, future plans, and your own assessment of the economic trend.

If you would like to learn more about how to manage your loan or need further information or personalized advice, please feel free to contact us. We are available to provide specific advice tailored to your situation. We hope today's content has provided you with inspiration, and we are here to assist you whenever you need.

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.