Let’s talk mortgage terms, property pros.

Market watchers will have noticed some juicy numbers floating around: The OCR dropped by 50 basis points earlier this month to 3.75% – its lowest point since 2022; one-year fixes below 5.50% from some major banks; 5.19% for 18-month terms, and — drum roll — Westpac’s head-turning 4.99% three-year fixed rate.

Here’s the million-dollar question (or in this case, the $100k question): Which term should you lock in?

The numbers game

Infometrics’ chief number-cruncher Gareth Kiernan did the math, so we don’t have to.

He used actual rates from past years and forecasted rates (available at that time).

The calculations are interest only.

Here’s what he found:

  • If you’d fixed for one year in March 2021, and continued to fix for one year each March after that, by March 2026 you would have paid $25,530 in interest
  • Fixing every two years from this date, your interest would total $23,620
  • Every three years: $21,410
  • Every four years: $17,603
  • Five years: $15,050
  • Floating, $34,879. Ouch!

Remember March 2021?

Back then, the five-year fixed rate was 3.01% – something we won’t see again for who knows how long. But if you managed to clinch that deal then you’re probably feeling pretty smug right now. That strategy would have cost you just $15,050 in interest over five years, compared to a whopping $34,879 if you’d gone floating.

Just remember, though, that between 2007 and 2018, five-year fixes were usually the most expensive option, often by a significant margin.

Pro strategy

Here’s what the experts are doing:

Kiwibank’s chief economist Jarrod Kerr plays it like a portfolio manager – splitting his loan across different terms. Why? It’s like diversifying your investment portfolio, but for mortgage rates.

Meanwhile, CoreLogic’s Kelvin Davidson points out an interesting trend: 47% of new lending in November was floating. That’s a lot of people playing the short game.

Key takeaways for property investors

  1. Shorter fixed terms typically = more cost-effective
  2. Consider longer terms only when rates start creeping up (even if they look higher than short-term rates)
  3. The OCR is expected to drop further this year, but inflation’s still lingering like that one tenant who won’t return their keys

If you’re losing sleep over fixed terms, remember: Sometimes paying a bit more for certainty with a longer term isn’t the worst strategy. It’s like buying insurance for your mortgage rate.

Want to dive deeper into property investment strategies? Hit reply to this email or call 0800 GOODWINS for a chat.