NZ Mortgage Structure Advice

Decisions on mortgage structure is painfully difficult in the current environment, but as always we are here to try to shed some light and make things simple.

We've had rates increasing a lot this year (I'm sure you noticed!) and there has been further increases expected as inflation surges worldwide.

The longer term rates (3-5 year fixed) have rocketed up and are just not good value right now. There has been an expectation that central banks will throw the kitchen sink at inflation by raising rates but then the economy will be choked off and then rates will come down. If this happens it makes no sense to be locked in at high rates for a long time.

The 1 year fix has been a no go because if rates are going up rapidly while central banks throw the kitchen sink at inflation then you wouldn't want to be fixing in 12 months time either.

So the 2 year fix has been the only show in town until a few weeks ago when things changed - as they always do!

There have been signs that inflation worldwide may have peaked with some inflation reports in the US coming through very high but not as high as was expected. Wholesale rates have been going down since as markets are now not expecting rate increases to be as severe as was previously expected.

Now there is an argument to look at the 1 year fix rather than the 2 year fix especially because the 1 year will be lower rates for the next 12 months. You get to bank that before you even worry about whether rates have gone up after 12 months.

I think what you do depends very much on your personal situation. If you are quite well established financially then you can probably afford to take a risk and fix for 1 year. If you have just bought your first home then probably you cannot afford for rates to move against you and you need more certainty in your life, in which case the 2 year fix will be better and perhaps worth paying 5.35% rates for the longer term certainty instead of 4.95% for the 1 year fix.

Another good option in this environment is to look at the 18 month fix. It is often ignored because it is not a round number in terms of years but when 1 year might be too soon to refix, and 2 years might be too long, 18 months is a pretty good compromise at 5.29%