Splitting and fixing interest rates.

I had a bit of an interview with Diana Clement, who wrote an article on OneRoof, and I thought I’d expand a bit of what we were talking about.

Does the splitting strategy still make sense when interest rates are falling?

Short answer: yes. Because what this strategy gives you is the option to take advantage when things improve quickly and when things take longer to improve.

Falling interest rates don’t mean everyone with a mortgage will suddenly be house shopping; it just means they will manage their mortgage better. Most people buy a house once every 7-10 years, so a falling interest rate doesn’t really change their long-term plans. It will, however, affect those who have been waiting to get onto the property ladder, usually first-home buyers.

Predicting interest rates is like predicting the tide. The most important factors in predicting the tides are the positions of the sun and moon – their distance from Earth, their direction in space, and how they’re moving. Nowadays, more accurate predictions require information about the contours of the sea floor.

Tide forecasters like NIWA can tell you what the tide will be doing at a specific location on a date and time. For example, in Campbell’s Bay, on Friday, 1st January 2027, it will be high tide at 2.44pm.

They can’t tell you how high up the beach the water will go – because various factors come into play. How much polar cap ice would’ve melted, whether a speed boat went past, whether there was a storm recently, etc.

It’s the same with interest rates; there are so many ranging factors (read our previous article about the recent factors coming into play), that it’s impossible to predict.

Diana writes about homeowners struggling to sleep at night with huge mortgage increases looming. Some of the others she spoke to had comments like…

• Extending the length of your term to ease the pain but also means you could be in pain for longer.
• Refinancing to get better deals, perhaps getting a cashback or other incentive for changing banks.
• Getting rid of ‘After Pay’ and ‘Gem Visas’ etc.
• Encouraging clients who are being bullish and trying to float their entire mortgage to fix on a mix.

I, of course, talked about splitting loans between two or three fixed-rate periods. We will always ask our clients if they have a specific reason for their actions. Some do – they will sell a property or something like that, but they’re in the minority. Most clients say that they’ve heard somewhere that interest rates will be lower in a year. But we have the conversation around whether they will be right about their timing.

“The term you choose should balance your desire for a lower rate and your desire for a good sleep at night.”

So if you want to discuss the options available to get through and sleep at night, we are always here to answer your questions and be your mortgage sounding board.