The Reserve Bank has kept the Official Cash Rate (OCR) unchanged.

This naturally leads to one big question:

What should you do with your mortgage?

In this article, we’ll cover three simple things:

• Why the OCR didn’t change

• What this may mean for interest rates

• How to think about fixing your loan

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Why Didn’t the Reserve Bank Change the OCR?

The short answer is balance.

Inflation has been slightly above the Reserve Bank’s target range. But the Bank believes inflation will likely ease and move back toward 2% over time.

At the same time, the economy is only just starting to recover.

Growth is improving, but demand is still soft. Unemployment remains high. There is still spare capacity in the system.

If rates were raised too early, it could slow the recovery.

For now, the Bank is choosing to wait and watch the data.

Even if rates rise later, most expectations suggest any increases would likely be gradual.

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Important: OCR Unchanged Does NOT Mean Rates Unchanged

This is something many borrowers misunderstand.

The OCR mainly affects:

• Floating rates

• Short-term fixed rates (like 6 months or 1 year)

Longer fixed rates (2, 3, or 5 years) are driven more by:

• Wholesale interest rates

• Market expectations

• Bank pricing decisions

That’s why mortgage rates can move even when the OCR doesn’t.

Banks price loans based on future expectations, not just today’s OCR.

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Choosing a Mortgage Rate Is Not About Guessing

Many people ask:

“Which rate is the cheapest?”

A better question is:

“Which option feels safe and manageable for me?”

No one can predict interest rates with certainty.

But you can manage your own risk.

The goal is not to perfectly time the market.

The goal is to avoid unnecessary stress over the life of your loan.

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Practical Tips for Borrowers

1. Start With Your Own Situation

Instead of chasing the lowest rate, think about:

• Is your cash flow comfortable?

• Do you have savings or buffers?

• Can you handle rate changes?

• Or do you prefer certainty?

If repayments are manageable and flexible, shorter fixes like 6 months or 1 year may offer more flexibility.

If things already feel tight, stability may be more important than squeezing out a slightly lower rate.

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2. Don’t Put Everything on One Term

Even if you prefer short-term rates, fixing your entire loan on one single term can increase risk.

Splitting your loan can help:

• Part fixed short-term

• Part fixed longer-term

This reduces the pressure of “getting the timing right.”

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3. Remember Banks Price Differently

Different banks often offer different rates for the same term based on their pricing strategies.

Even small differences can add up over time.

In some situations, splitting lending across banks can also reduce risk.

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4. Fixing Earlier Can Bring Peace of Mind

Right now, changing your rate later is usually inexpensive.

If you fix early and rates fall, you can often refix for a small fee, as long as it’s done before rollover date.

This means you can gain certainty now without locking yourself in case rates fall.

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5. Use Break-even Analysis

When comparing fixed rates, a useful question is:

How much would rates need to rise for a longer term to be worth it?

Example:

• 1-year rate: 4.49%

• 2-year rate: 4.89%

• Difference today: 0.40%

By choosing the 2-year rate, you are paying extra for certainty.

If you choose the 1-year rate, the key uncertainty is Year Two.

For the 2-year rate to be financially worthwhile, the second-year rate after a 1-year fix would typically need to rise at least 0.8%.

If rates rise less than that, the 1-year option may turn out cheaper.

Break-even analysis is not about predicting rates.

It’s about understanding the size of the risk you are taking.

Ask yourself:

• Do I expect a large rate increase?

• Can my cash flow handle it if it happens?

• Is certainty worth paying extra for?

If you’d like help running a break-even calculation based on your loan size and structure, we’re happy to assist.

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Final Thought

No one can predict interest rates.

But everyone can build a strategy that feels safer and more manageable.

The lowest rate is not always safety.

A sustainable repayment plan is safety.

If you’re unsure what to do, feel free to reach out.

We’re always happy to talk through your options.