Some of the major New Zealand banks have dropped interest rates on short-term loans. At the time of writing (03 May 2021), the lowest one-year rate is 2.25% among these major lenders.

In this video, we’ll update you with the latest information about the home loan interest rates – the current rates for short-term loans, the lowest interest rate, the trend for the next two or three years, and our suggestions on how long you should fix your home loan for.

So, either if your home loan is coming off with fixed term and needs to be rolled over, or if you have a new loan to be settled soon, this video will be of great help for you to make the informed decisions.

NZ mortgage interest rates are dropping again (Updated in May 2021)

Video Timeline

1. NZ home loan interest rates (Updated on May 2021) - 00:46

2. NZ interest rates trend - 02:21

3. How long should I fix my home loan for? - 02:50

1. NZ home loan interest rates (Updated on May 2021)

	One-year	18-month	Two-year
NZ major banks’ interest rates	2.25% ↓	2.49% ↓	2.59% ↓
NZ Chinese banks’ interest rates (Bank of China for example)	2.09% ↓		2.29% ↓

At the time of writing (03 May 2021), some mainstream New Zealand banks have dropped their one-year interest rates from 2.29% to 2.25%. More banks are falling into line with cuts to home loans. We are still awaiting rate change announcements from more banks, which will surely come soon. 

They also trimmed their two-year interest rates to 2.59%, but still slightly higher than the one-year rates. The 18-month rate is 2.49%, which becomes the second-lowest rates among loans with different fixed terms.

On the other hand, some Chinese banks also lowered their interest rates, undercutting the main bank level. For example, Bank of China (BOC) reduced the one-year rate to 2.09%, hitting the lowest interest rate at a new record. Their two-year rate of 2.29% is also cheaper than the major banks.

It is starting to look like that lower and lower is still the continuing track for home loan interest rates this year.

However, back to early this year, some economists predicted that the interest rates would climb up by early this year, given the overheated property market. But now, banks are starting to drop their interest rates for the shorter fixed terms.

In our view, the newly released housing rules, removing the interest deductibility on rental property, in particular, are starting to take the heat out of the market. For this reason, the interest rates haven’t necessarily to be increased in order to relieve pressure on the market.

If you already have a fixed term home loan that is up for renewal, now is a good time to lock in with the lower rates and save for cash flow.

2. NZ interest rates trend

It is hard to make accurate predictions on interest rates’ trend, even by economists. This is because the future is also driven by many unknown factors such as the significant policy changes, how well people react to the policy changes, the COVID situation, and the global economy.

But my opinion is, home loan interest rates for the shorter fixed terms are very likely to stay low or drop further for the next two years.

3. How long should I fix my home loan for?  

If you aren’t worried about your household cash flow or don't have much pressure to repay your debt, then fixing your home loan for one year is a good choice as it’s the lowest rate among all terms, and also they are expected to stay low for a while.

However, if your loan is relatively large or you just want more certainty, you can choose to have at least a portion of your loan, say 20% or 30%, to be fixed with a longer fixed term. For example, fixing some percentage of your loan with 18 months or two years allows you to have the best of both worlds, and you won’t have to worry if your entire loan comes off fixed term together in case rates do go up later, resulting in suddenly paying much more.

Note, the recommendations above are provided for the general situation only. As your particular situation and goals are not taken into account, accordingly, it doesn’t constitute personalised financial advice.

Prosperity Finance - Here to Help

If you would like to get more tailored advice, please feel free to get in touch. We are happy to review your situation and let you know how we can help. Call us at 09 930 8999 for a chat with one of our financial advisors.

Read more:

How may the removal of interest deductions hurt your borrowing power?

Restructure your loan before it’s too late

New housing policy 2021: Can investors still afford to hold the properties they have?

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.