How Long Should I Fix My Mortgage For?

Finally, mortgage rates are on their way down. Due to the country’s weak economy, the Reserve Bank (RBNZ) is signalling that cuts to the Official Cash Rate (OCR) are on the horizon. And banks have already started reducing their rates.

Since the beginning of May, while variable rates have remained static, fixed rates on Canstar’s database across all terms, from six months to five years have dropped.

Kiwis faced with refixing their mortgages are also betting on lower mortgage rates in the near future. The latest RBNZ figures reveal that, in May, 20% of new fixed residential mortgages were for six-month terms, and 44% were for 12 months. That compares to 4% and 35%, respectively, in May 2023.

But while lower mortgage rates now seem a certainty, if you’re facing refixing your mortgage in the next couple of months, it doesn’t remove the dilemma of choosing between a six- and a 12-month term.

Do you opt for six months, and bet, like all the major high-street banks, on an OCR cut in November that will lead to prompt mortgage rate cuts, or do you lock in what savings you can now and fix for 12 months?

Of course, the final decision is up to you, and it must align with your budget and financial goals. However, it’s not a bad idea to do a couple of quick sums to see how the options stack up.

How long should I fix my mortgage for: 6 months v 12 months

Most of the big banks are offering very similar 6- and 12-month rates for those with at least a 20% deposit. And the 12-month rates are the lower of the two, in anticipation of OCR cuts.

To work out the best option for you, you’ll need to calculate the break-even rate. This is the interest rate you’ll need to secure next time your refix, in six months, to make opting for a higher rate now the cheaper option.

Working out the break-even rate involves some simple arithmetic: 12-month rate – (6-month rate – 12-month rate). But to save you the effort, we’ve done the math for you:

Six months vs 12 months: break-even rate

As you can see, the average break-even rate is 6.65%. So if you opt for refixing for six months, you’ll need to secure an interest rate of at least 6.65% in six months time to make your decision worthwhile, which doesn’t seem too much of a gamble.

Indeed, a rate of 6.65% isn’t too far from the current average 12-month rate of 6.85%. And all the big banks are already offering sub-6.5% rates over longer fixed terms.

So, given these numbers, you can see why people are already betting on even lower mortgage rates in the near future by opting to fix for six months rather than longer terms.

Lowest Mortgage Rates for Refinancing

Looking to refinance your mortgage? The table below displays some of the 1-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for home owners looking to refinance. This table is sorted by current interest rates (lowest to highest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.

Compare Lowest Home Loan Rates for Refinancing

About the author of this page

This report was written by Canstar’s Editor, Bruce Pitchers. Bruce has three decades’ experience as a journalist and has worked for major media companies in the UK and Australasia, including ACP, Bauer Media Group, Fairfax, Pacific Magazines, News Corp and TVNZ. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.