How Long to Fix - What Would a Savvy Borrower Do?

In recent months movement among mortgage rates has been minimal, and the mortgage curve continues to echo a tick shape, with the sharp low point punctuating the 1-year rate mark. This makes it very clear that the 1-year terms are quite preferable. Not only are these rates the cheapest, they are considerably cheaper than alternatives. The fact that they are so much cheaper has resulted in an increase in people opting to pay break fees and fix for the short term.

As it stands there would need to be large rises in mortgage rates in the coming years for it to be worthwhile fixing for a longer term – collectively mortgage rates (from six months to three years) would need to rise by an average of 1.48% over the next two years for it to be worthwhile fixing for longer*. And, while such a significant rise is certainly plausible, many would say it’s unlikely, as the OCR is on hold and there is just a gradual increase in global interest rates projected.

So, at the moment 1-year rates seem preferable.

However, the rate alone should never be your only consideration. For most of us an element of certainty can be very valuable. It’s also a good idea to minimize “rollover risk”, which is the risk of having to make another tough strategic decision when the short term contract comes to an end.

A good way to ease the stress is to spilt your mortgage across two or three separate loans, making the most of the various short term rates. You can spread the loan load, and the rollover risk, by adopting a combo of 1-year, 18-months and 2-year terms, or longer if you really want long term certainty!

Keen to know how you can best make the current rates work for you? Get in touch and we'll sort a personalised mortgage strategy to suit your needs.

 *This is based on the average carded rates from ANZ, ASB, and Westpac