ASB has joined the fray in the latest round of mortgage rate wars - dropping its one year fixed rate to match the record low 3.95 per cent offered by ANZ.

ASB's one-year fixed home loan rate (special) has reduced from 4.19 per cent (per annum) to 3.95 per cent, while the standard rate for the same term has reduced from 4.59 per cent to 4.45 per cent.

The reduced rate is available for new and existing home lending from tomorrow morning.

Yesterday the Bank of NZ dropped its two-year fixed interest rate to a "historic" 3.99 per cent as it returned fire in a burgeoning mortgage war between the country's lenders.


ANZ - the nation's largest bank - last week offered the lowest rate by a major bank since just after World War II with a fixed one-year term of 3.95 per cent.

It then followed this up by offering a $3000 cash back incentive for customers, who took out a new home loan and committed to keeping their mortgage with ANZ for three years.

Westpac has also announced it will match ANZ's offer of a one-year fixed rate at 3.95 per cent.

Loan Market mortgage adviser Bruce Patten says spring is traditionally the time when banks released interest-rate specials, but the current low rates showed they were in a fight for customers.

"It means banks are trying to stimulate activity so they are giving up a bit of margin to get a crack at the small volume of lending around," he said.

"It is great for the consumer because we have some really low rates."

The banks' new low rates come after a near decade long boom of skyrocketing Auckland house prices drove values to unaffordable levels that locked many people out of home ownership.

The subsequent drop in demand and new Government restrictions targeting investors led prices and sales volumes to then plateau and largely remained flat throughout this year.


However, October had brought an uptick in prices and the number of house sold, Barfoot and Thompson managing director Peter Thompson said.

These signs of a Spring bounce combined with the banks' new low rates led some pundits to question whether there would now be a rush of new buyers entering the market, who would once again push prices up.

The low rate specials offered by ANZ, BNZ and Westpac are only available to home owners with a deposit or 20 per cent equity stake in their homes.

ANZ's $3000 cash back offer, however, is available to customers with less than 20 per cent equity in their homes, according to Loan Market's Patten.

Should you refinance?

• To check whether it's worth breaking the contract on your current home loan to take advantage of the new low interest rates, you'll need to ring your mortgage broker or bank

• They'll tell you how much your fee is for ending your home loan contract early

• You need to then calculate whether the fee is going to add up to more than the money you will save from reduced interest payments. But beware, if the fee is large, you may have to add it to your home loan and then pay interest on it as well

• Loan Market mortgage advisor Bruce Patten says most people will find they either save no money or lose money if they break their contract. However, he said its worth calling your broker or lender because the odd person will be able to save cash