Photo: RNZ
Interest rates might have started to rise but what home loan borrowers pay in interest is likely to keep falling through this year.
BNZ chief economist Mike Jones said while 2025 was the "year of the refix" - with 81 percent of fixed-rate mortgage borrowers refixing, the highest percentage in 13 years - there was still more activity to come this year.
Over 2026, 68 percent of fixed rate loans were due to come up for renewal.
"It's the coming six months in which mortgage term expiries are the most pronounced relative to average," he said.
"There's approximately $132 billion worth or 34 percent of total borrowings. The long-run average is 27 percent."
He said there would mean cash flow improved for many borrowers.
"A hypothetical one-year $300,000 loan locked in a year ago at 5.74 percent could currently be refixed for another 12 months at a rate of around 4.5 percent. That would result in an interest saving of a little over $300 a month."
He said, in November, the average rate being paid was 5.17 percent.
"It has been a slow 14-month descent from the 6.39 percent peak in October 2024."
He expected it could get to 4.5 percent by the middle of the year.
"It's kind of a weird time because you've got mortgage rates seemingly bottoming, starting to turn higher but for the average person coming up for renewal they will still most likely be experiencing or be facing a menu of options lower than what they were previously paying, just by virtue of the slow-moving nature of the refixing beast.
"That is obviously a key plank of the economic recovery last year and also this year... we think we're about 80 percent of the way through that process of refixing on to lower rates with roughly 25 points' worth of easing still to come through that pipeline over the next six months."
He said many people were choosing to pay off their mortgages more quickly rather than using their savings to spend.
"There's a strong element of that, keeping your repayments perhaps similar to what they were but applying the extra relief from lower interest rates just to principal. We're seeing quite a bit of that. I think there's quite a lot as well that's just been soaked up more or less immediately by the higher costs that households are staring into."
Some was going into discretionary spending, he said.
"It's helping turn that retail sector but it's certainly not turning with any great force which I think speaks to the fact of some of those pressures that households are still under."
The reduction in debt would be good for long-term sustainability, he said.
He said the average home loan rate being paid by households would probably hit the bottom of this cycle in the middle of the year.
"It take some time to turn and it will stay at a relatively supportive level for a period of time and probably all of 2026."
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