How do you decide which interest rate to take?

You are offered interest rate options. Really cheap interest rate options. But how do you know what's best to take? The 1 year rate, the 2 year rate? How do you decide?

Domestically here in NZ you can expect the Official Cash Rate (OCR - the base rate set by the Reserve Bank) to stay at its current low potentially into 2020. However, forecasting fixed rates in NZ is tricky as where floating rate mortgages are funded from deposits that savers make in the banks, fixed rate mortgages are funded via a mix of deposits and money from offshore - primarily the US. 

So, when looking forward to where fixed rates might be in the future you have to look at the global economy - that's still very turbulent post GFC and this makes picking fixed rates in NZ very difficult, the leading economists get it wrong consistently.

Domestically I don't think you'll see upward pressure from the RBNZ based on what their latest statement said. Internationally, rates are heading up in the US which normally means rate rises here. Having said that, at present the banks are managing to fund a bigger % of fixed rate loans than normal from deposits (savers in NZ) so reliance on the US $ is less meaning less impact of US rate rises.


We provide our clients with interest rate break even analyses so they have can make an informed decision. If you’d like advice on deciding which interest rate is best for you, get in touch today.