Good News for Borrowers: OCR Cut to 4.25%!
On November 27, the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to 4.25%, down from 4.75%. This marks a significant reduction of 1.25% since August 2024, bringing it down from the peak of 5.50% it held for over a year.
What Does This Mean for You?
Competitive Rates: Major banks now have a 6-month fixed rate at 5.99%.
12-Month Fixed Rates: Currently offered at 5.79%, this is another strong option with minimal difference from the 6-month rate.
Understanding Break-Even Rates
For a 12-month term, the break-even rate is 5.59%. Note, if we find the 6-month rate below 5.59% in 6-months' time then it is better to lock now for 6-months at 5.99% rather than 1-year at 5.79%.
Historical Trends
When the OCR drops by 0.50%, banks typically pass the full reduction to floating and less of that reduction through to their fixed rates. Therefore, it may take two further OCR cuts for banks to reach the 5.59% break-even point in our example.
What Should You Do?
Short-Term Fixes: With the current interest rate cycle nearing its bottom, fixing your rate for 6-18 months could be a smart move, especially if you plan to sell property or borrow more funds soon.
Long-Term Stability: If you prefer a risk-averse approach, consider fixing your rate for 3-5 years after an initial 6–18-month term. This strategy offers short-term flexibility and long-term stability, protecting you from external fluctuations.
Looking Ahead
The global economic landscape remains uncertain, with potential geopolitical shifts and changes in international leadership. Planning your mortgage strategy with these factors in mind can help you stay ahead.
Of course, where interest rates ultimately head is crystal ball gazing; the intent here is to provide context to decision making.
And if you wish to get the best mortgage advice or rates – please feel welcome to get in touch at www.keamortgages.co.nz, email info@keamoprtagges.co.nz or call René on 021 025 42780.
