If your home loan is coming up for refixing soon, you might be wondering what new term to choose. Should you opt for a short fix, and give yourself the additional flexibility of refixing again soon? Or would you rather lock in for longer, and have more certainty about your budget and future repayments? Perhaps you want some, or all, of your loan on a floating rate to give you more flexibility.

There’s no “right” decision when it comes to choosing an interest rate term, but there are a few things you can think about as you make your decision.

No one-size-fits-all

In New Zealand, home loans are typically either floating, with an interest rate that can change, or fixed for terms ranging from six months to five years. What works for one borrower may not suit another. Likewise, the loan structure that suited you when you first took out your loan, or when you last refixed, may not be the most suitable option for your circumstances today. When you’re thinking about how you want to fix your loan, and what term you want to fix it for, you’ll need to think about a few factors.

Cashflow: Different terms will come with different interest rates, depending on the likely direction of the wider interest rate environment. Currently, shorter fixes are generally a bit cheaper than longer options.

Certainty: Longer fixes bring more certainty, and that’s more important to some people than others. If you’re the type of person who likes to know what your repayments will be going forward into the future, a longer-term fix may be suitable for you.

Future plans: Your plans for the future can also play a role in your decision. If you think you may sell your home within the next few years, a shorter fixed term, or even a floating rate, could be worth considering. Likewise, if you expect to receive a lump sum that you would like to put towards your mortgage, maintaining some flexibility may be important.

Splitting may be an option

You don’t have to fix your home loan in one chunk. Many borrowers opt to split their loan into smaller parts and fix them for different terms. That can be a way to spread any interest rate risk and potentially have some of the protection of a longer fix, as well as the flexibility of a shorter one.

Your home loan, your life

Your home loan needs to work with your life. When you’re thinking about refixing, you may want to consider what is happening to your circumstances more generally. A job change on the horizon might mean you could make higher repayments in the future, or perhaps you’re about to start a family and want the flexibility to reduce payments for a while. Your home loan should work for you and fit comfortably with your wider financial situation.

Review regularly

Each time your home loan comes up for refixing is a good opportunity to review whether it is still working for you. If your financial situation has improved, you may be able to increase your repayments and pay off your loan sooner. Alternatively, if interest rates have fallen, keeping your repayments at the same level could also help reduce the overall term of your mortgage.
You might also consider making a lump-sum repayment before refixing, or negotiating a more competitive interest rate. Just as importantly, it is worth reviewing your loan structure to ensure it still provides an appropriate balance of certainty and flexibility for your current circumstances and future plans.

We are here to help

Your SHARE mortgage adviser can help you compare the options available to you and make a decision that works with your wider financial position. We can help you take a holistic view of your finances and how your home loan, and your next fix, will fit into that.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.