Same answer, different reasons

Let me tell you something that sounds obvious but that most people miss when it comes to their mortgage: it’s not the decision that matters most — it’s the thinking behind it. I talk to clients all the time who’ve heard that a friend fixed for two years and figure that must be the right call for them too. Maybe it is. But probably for completely different reasons. A couple fixing for two years because one of them is going on parental leave and they need certainty in their budget? That makes sense. Someone else fixing for two years right now because Trump is bombing Iran and global markets are lurching around like a drunk at closing time? Also makes sense. Same answer. Entirely different logic. That’s mortgage advice in a nutshell. The solution isn’t the point. The thinking is.

Where we are right now?

The Reserve Bank held the OCR steady in April. No surprise there. But a Kiwibank economist (and I think he’s right) is calling a 0.25% rise somewhere around September or October. The direction of travel is up, not down. This time last year, clients were indecisive. Rates were still falling, nobody wanted to lock in too early and miss a better deal around the corner. I get it, that was the right instinct then. But the worm has turned. When I ring people now and tell them their rate is coming up for renewal, the conversation is very different. There’s no more umming and ahing about whether to float, whether to wait, whether rates might drop a bit more. They just say: yep, good idea, let’s do it. That shift in sentiment tells you something.

The problem with predicting anything right now

I’ll be honest — nobody has a clue what’s coming next, and anyone who tells you otherwise is kidding themselves. The Middle East ceasefire that was announced last month had effectively fallen apart by the same evening. Iran said no. Israel said it didn’t apply to them anyway. Markets move on this stuff, and by extension so do our interest rates here in New Zealand. And by the time this goes to print the last two sentences could well be out of step! So what do you do when you can’t predict anything? You stop trying to be clever and you go back to basics.

Split. Always split.

The starting point (and I say this to every single client) is to split your mortgage. At minimum, 50/50. If your total mortgage is around a million dollars or more, a three-way split starts to make sense, because you end up with manageable chunks of around $300,000 each. Beyond that, it gets complicated for not much extra benefit. What splitting does is give you exposure to different parts of the cycle without betting everything on one outcome. You’re not trying to pick the perfect moment, you’re spreading the risk sensibly. On term length, I’ve shifted my thinking a little. At the end of last year, I was pushing people toward three-year terms because the pricing was good for that length of time. Now I’m leaning more toward 18 months and two years, still split, so there’s a gap between your expiry dates. That two-year window is where I’m seeing the better value right now.

Do you actually need a floating portion?

Probably not, and here’s why. Most fixed-rate products these days allow you to overpay by around 5% of your loan balance every year without any penalty. On a $1 million mortgage, that’s $50,000. That’s quite a lot of extra repayment capacity without needing to keep anything floating. The only real reasons to have a floating chunk are, if you’re expecting a large lump sum like a bonus, a commission, an inheritance, etc,  that you want to throw at the mortgage all at once, or if you genuinely need more flexibility than that 5% allows. If neither of those applies to you, keeping a floating portion Might be useful if you want to pull that money back out or you have a chunk of cash on hand and like the idea of offsetting. Either way, Be efficient about it. Not too much, not too little.

The wave is washing out

Through most of 2024, I was keeping clients on short terms (six or twelve months in a lot of cases) because we knew rates were still falling and there was no point locking in too early. That meant a huge wave of renewals coming through month after month. Most of those people have now rolled into longer terms, so the wave is washing out. Expiry dates are two to three years away now rather than six months. For my clients, that means more stability. The point is: if you’re one of the people still sitting on a short term, or coming up for renewal soon, now is not the time to keep kicking the can. Lock it in. Split it. And if you’re not sure what ratio makes sense for your situation, that’s what I’m here for. Get in touch and we’ll work through it together — no jargon, no sales pitch, just an honest look at where you’re at.