What lower interest rates mean for your mortgage and savings in New Zealand

BY JULIUS CAPILITAN

With the recent 50 basis point drop in the Official Cash Rate (OCR) announced last Wednesday, followed by major New Zealand banks lowering their interest rates by about 0.50%, many Kiwis are wondering how this will impact their personal finances – especially when it comes to mortgages and savings.

For most Kiwis, fixed-term mortgages are the preferred choice due to their stability and predictability. Julius says, "Locking in a fixed rate can be appealing now, especially with interest rates dropping. However, there’s something to consider – many experts are expecting further OCR cuts over the next six months. If you lock in a fixed rate now, you may miss out on even better rates down the line, which could save you more over the long-term period."

This creates an interesting dilemma for homeowners: Do you lock in a rate now to avoid future uncertainty, or wait for potentially lower rates? Julius adds, "It’s about balancing your immediate need for stability with the potential long-term savings from waiting for lower rates."

SHOULD YOU REFINANCE?

With banks dropping their interest rates, many Kiwis might be wondering if it’s a good time to refinance their home loan.

Refinancing could allow you to take advantage of the lower rates and potentially reduce your repayments. Julius says, "This is the perfect time to review your mortgage. Refinancing at a lower rate could free up cash flow for other financial goals or help pay off your loan faster. It’s all about making your money work harder for you." Julius suggests speaking with a mortgage broker to explore refinancing options tailored to your needs.

WHAT ABOUT SAVINGS?

On the flip side, lower interest rates aren’t great news for savers. Julius says, “If you have money in a savings account, you’re likely to see lower returns. While this can be frustrating, it also provides an opportunity to reassess your financial strategy.”

Julius recommends considering alternative options such as term deposits, managed funds, or even exploring investment opportunities that could offer better returns in a low-interest environment. “It’s about finding the right balance between growth and security for your money.”

THE HOUSING MARKET OUTLOOK

Lower interest rates are often seen as a boost for the housing market. Julius says: “With mortgage rates dropping, we expect to see increased demand for homes as buyers try to take advantage of the lower borrowing costs. This could provide a lift to the housing market, especially as we head into the last quarter of the year.”

However, he advises that while lower rates might stimulate activity, the market could remain cautious due to other economic uncertainties. “We expect the housing market to strengthen, but it will likely be a gradual recovery rather than an overnight turnaround.”

WHAT’S NEXT?

With the OCR now at historically low levels and banks following suit with lower interest rates, it’s a crucial time to review your financial situation. Julius says, “Whether you’re looking to buy a home, refinance, or reassess your savings strategy, these lower rates provide opportunities to optimise your finances.”

Century 21 Financial are here to help you navigate these changes and make the best decisions for your future. Please do not hesitate to discuss how these lower rates could benefit you and your financial goals.

E: julius.capilitan@century21.co.nzP: 027 2777 352