Mortgage interest rates: Financial experts reveal mistake homeowners are making

Hayward said split mortgage options effectively give homeowners a “diversified interest rate” over the terms they’re looking at.

“What you’re trying to achieve is the best long-term average return over the term of your loan.”

Hayward said there was stability in longer-term rates.

“The trade-off is in price,” he said.

“The good thing about a longer-term fixed rate … it gives them that surety and confidence that that’s what they’re going to be paying for that time.

“Most people have a mixture between fixed and floating.”

Hayward said after Covid there were one- and two-year rates running at about 2.39% but “hardly anybody” took the five-year fix at 2.99%.

“You actually saw this really fantastic five-year rate at that time, which was brilliant for people, but they’re battling with that psychology of thinking ‘I’ve got to get everything cheaper’ rather than a strategy around ‘what am I trying to achieve’.”

This week, ASB cut its three- to five-year rates by between 20 and 30 basis points (bps).

However, it also hiked its shorter lending options.

The move followed the country’s largest bank, ANZ, cutting its one-, two- and three-year mortgage rates.

Its special home loan rates fell by 14bps to 4.65% for one year and by 20bps for two- and three-year fixed mortgages to 5.29% and 5.49%.

Westpac also cut its three- to five-year rates by between 20-30bps.

Cameron Marcroft, senior mortgage adviser at Loan Market Central, said recent drops in mortgage rates largely came off the back of the Trump-Iran peace deal.

“The peace deal impacted the swap rates. When swap rates moved, there’s been a little bit more margin for the banks, so there was a reduction in there,” he said.

“The banks are very hungry for business, and so there was a little bit of that.

“They’re coming out with some pretty good offers for people that are wanting mortgages right now with cash contributions.”

Marcroft said one- and two-year home loan rates were still the most popular.

“The two-year is below 5%, which is an attractive rate for stability.”

He said the three-year rate is historically “very good” going back 15-20 years.

“But us Kiwis can really only remember our low twos at the moment, so probably see it as a high rate.”

Marcroft said that in terms of interest-rate movements, it was a bit “month by month” at the moment.

“We think it’s better off to grab the rate on offer today because there’s probably likely movement upwards to come,” he said.

Cameron Smith is an Auckland-based business reporter. He joined the Herald in 2015 and has covered business and sports. He reports on topics such as retail, small business, the workplace and macroeconomics.