Should you fix your mortgage now as rates fall below 5%?

As interest rates have fallen over this year, all home loan fixed-term rates have dropped. Photo / RNZ

By Susan Edmunds of RNZ

Fixing a home loan for less than 5% is possible at the moment – but should you do it?

As interest rates have fallen over this year, all home loan fixed term rates have dropped.

From a high of more than 7%, they now mostly sit between 4.45% and 5.15%.

Westpac and BNZ offer five-year fixes for 4.99% – a rate that has not been seen over that term since the end of 2021.

ANZ economist David Croy said the big question for borrowers was when would be the appropriate time to lock in a longer-term fix.

“We think we are getting closer.”

He said cuts to the Official Cash Rate (OCR) would drive mortgage rates lower sooner and should help the economic recovery in 2026.

“It’s also worth bearing in mind that wholesale markets are already banking on at least one more OCR cut, which is why the 18-month is below the one-year, which is below the six-month and so on.

“Our mortgage rate projections point to further moderate falls and, with rises unlikely, borrowers likely have a little more time – months, not quarters – before needing to make a decision.

“However, we would warn that the window could close rapidly, if economic data starts to improve.”

He said the two-year rate was of “obvious” value, given how low it was, compared to the other terms – banks are offering 4.45% or 4.49% – but he said three years could be worth considering, given the OCR was expected to start rising from early 2027.

“While the 18-month is the cheapest rate and, for some, will offer sufficient cover, the two-year isn’t much more expensive and nor is the three-year.”

The average five-year rate remains higher, but Croy said the lowest five-year terms were also not significantly more expensive and worth considering.

Squirrel chief executive David Cunningham said people were not choosing five-year fixes in large numbers.

“With the one-year at 4.49% – or 4.39% from TSB – and the potential for these short-term rates to fall towards 4%, few customers are willing to pay the premium for the five-year fixed term.

“If it were sub-4.5%, I think it’d get a bit more attention, while at 3.99%, it would get a lot. I doubt we’ll get there in this interest rate cycle, unless the world goes into recession.

“When the five-year fixed rate got to 2.99% about five years ago, the flows into five-year terms surged. That sort of rate is unlikely to recur in my lifetime.”

Infometrics chief forecaster Gareth Kiernan said taking a one-year fix now and then two years late next year would give an estimated average rate of about 4.59%.

He said that meant the certainty of a five-year fix did not cost a lot more.

– RNZ