Mortgages
4 min read
Here is your monthly interest rate report.
This gives you a quick, plain English update on how much your mortgage costs.
Interest rates basically haven’t changed over the last 30 days. There have been a few cuts here or there.
So, I’ll go through the exact changes below. But I can’t send an interest rate update without talking about Trump.
Tomorrow, the Reserve Bank will give its latest OCR update.
Most people think it’ll be another 0.25% down. That will be the 5th cut in a row.
But it’s not the potential OCR cut I’m looking forward to … it’s what the Reserve Bank will say about Trump’s tariffs.
It doesn’t matter whether they think the tariffs are good or bad (spoiler alert, they’ll think they are bad).
But do they think interest rates will go down faster because of Trump’s tariffs?
You’ve probably read that Trump’s tariffs could push up inflation. That would mean interest rates go higher for longer.
That’s not how the market is seeing it.
The one-year wholesale interest rate has dropped 0.3% since Thursday.
That basically means it’s cheaper for the banks to borrow money and lend it to you and me for mortgagees.
How does this work?
The US economy looks like it could be in for a rough time.
Not only are share markets way down (save yourself the heart attack and don’t check your KiwiSaver).
But tariffs have two potential impacts:
One is inflationary. If Fonterra wants to export 1 tonne of milk powder to the United States, it might usually cost a US buyer $5,000.
With a 10% tariff in place, the buyer (the importer) has to pay an extra $500 to the US government.
So now that 1 tonne of milk powder costs $5,500.
Prices have gone up, and that’s inflation. However, tariffs can have a deflationary impact. Faced with those higher prices, consumers cut back on their spending.
That can make an already weakening economy worse.
That’s why financial markets are betting that the Federal Reserve (the United States central bank) will cut interest rates 4 times this year.
3 months ago, the market was pricing in 1 Fed rate cut this year.
2 months ago, the market was pricing in 2 Fed rate cuts this year.
1 month ago, the market was pricing in 3 Fed rate cuts this year.
And today, the market is pricing in 4 Fed rate cuts this year.
What does that do?
A lot of investors (especially large fund managers) usually hold their money in the US
When US interest rates fall faster than expected, they look for better returns elsewhere.
So they move money out of the US and into other countries (like NZ).
If there’s more money available, it’s cheaper for banks to borrow.
And banks pass on those savings to Kiwi borrowers.
Effectively, that means your mortgage could get slightly cheaper.
This is why the wholesale interest rates have come down after Trump’s tariff announcements (i.e. ‘Liberation Day’).
Does that mean it’s certain? That your mortgage will 100% get cheaper? No, the world is very uncertain at the moment.
But if we zoom out. The markets are saying that tariffs will harm America’s economy. That can lead to interest rates going down faster.
Right, back to the interest rate update.
Remember, the bank usually discounts their rate when you take out a mortgage.
So they might advertise 5.25% for the 1-year rate.
But, when you borrow the money, they might offer you 5.15%.
It’s hard to see these discounts as a borrower. So, I like to share what we’re seeing at Opes Mortgages.
Most banks are offering around 0.1% off each rate. But there’s currently no discount on the cut-price 2-year rate.
All banks offer 4.99% on the 2-year, and I’m not seeing any discounts.
The lowest rate in the market is still 4.99%. But, this time, it is on the 2-year rate.
I mentioned last month that one bank was going down to 4.99% on the 1-year. They’ve now increased that to 5.05%.
A good reminder that rates can go up as well as down.
Some small changes to the servicing test rates, too.
Remember, although you may actually pay as little as 4.99% … the bank will make sure that you can afford the mortgage at a higher rate.
The lower the test rate, the more you can generally borrow.
The drops since last year are big. But here are the small tweaks that have happened since last month.
No change to cashbacks since last month. Most banks still offer 0.9% - 1% of your loan’s value.
Need help with your mortgage?
Hit reply and let me know your situation. I’ll come right back to you to see if my team can help.
Talk again next month,
Pete
P.S. I always send this newsletter out on the 2nd Tuesday of every month.
So if you’re keen for an update on the Reserve Bank’s OCR decision … check your inbox on Thursday.
My colleague Andrew will cover what happens in his weekly Private Property newsletter.
Mortgage broker for over 10 years, property investor and Managing Director at Opes Mortgages
Peter Norris, a certified mortgage adviser with 10+ years of experience, serves as the Managing Director at Opes Mortgages. Having facilitated over $1.2 billion in lending for 2000+ clients, Peter is a respected authority in property financing. He's a frequent writer for Informed Investor Magazine and Property Investor Magazine, while also being recognized as BNZ Mortgage Adviser of the Year in 2018 and listed among NZ Adviser's top advisers in 2022, showcasing his expertise.
