One-Year Fix Beats Two-Year Deal for Kiwi Homeowners

The Reserve Bank's expected increase in the Official Cash Rate (OCR) has led to higher mortgage rates, leaving homeowners wondering whether to fix their home loan for one year or two years. While a two-year fixed rate provides greater certainty, some economists believe that borrowers may be better off choosing a one-year fixed rate in the current market.

Currently, most major New Zealand banks are offering one-year fixed rates of around 4.75% to 4.99%, while two-year fixed rates range from 5.19% to 5.45%. The difference may seem insignificant, but over a large mortgage, it can translate into thousands of dollars in additional interest.

The reason longer-term rates are higher is that financial markets have already priced in further increases to the OCR over the coming months. Although inflation pressures have eased slightly due to lower global oil prices, economists still expect the Reserve Bank to continue increasing the OCR as it works to return monetary policy to more neutral settings.