When your Mortgage’s fixed rate is about to roll off, you’ve probably started getting emails, letters, maybe even a call from your Lender reminding you it’s time to “refix.” But when exactly is the right time to do that?
Firstly, it’s good to understand what ‘refixing’ means.
Refixing is simply choosing a new fixed interest rate for your Mortgage once your current fixed term ends. The Lender will offer you a menu of rates based on your situation and what’s happening in the market.
Most Lenders let you lock in a new rate up to 8 weeks before your current one ends (some only allow 6 weeks). Sounds convenient, but is it the best move?
The Lender wants you to refix early. Should you?
Lenders make it super easy to refix early. Click a button, choose a rate, done.
But remember it’s in their interest to lock you in again quickly. They’re not offering advice; they’re securing your business. That’s not necessarily a bad thing, but it’s worth asking if it’s in your best interest too.
What happens if you do nothing?
If you ignore all the reminders, your Mortgage will roll onto a floating rate. It’ll stay on a floating rate basis until you make a move, whether that’s tomorrow or in several years’ time. Also, if it’s a floating rate, that can move at any time of course.
When is the best time to refix?
Here’s where timing matters.
If we’re in a rate decreasing cycle, it might be worth holding off, as you can refix right up until the day before your current rate expires.
But it’s important to get advice well before that, as if you’re thinking about restructuring your Mortgage or perhaps switching Lenders, that takes time.
So, it’s best to give yourself 3-4 weeks to make that happen.
Rates and whether they are due to decrease, depends on the strength of the NZ economy, together with inflation forecasts both here and abroad. Is the bottom a few months or a year away? That is literally always a million-dollar question!
Reserve Bank Cuts
The Reserve Bank can cut the OCR (Official Cash Rate) in response to subdued economic activity and easing inflation pressures.
Lenders can adjust their short-term fixed rates in anticipation of an OCR reduction.
So, if you’ve held off fixing your rate, you might be in a stronger position if rates don’t shift down, as then you’re no worse off. The only real risk is an unexpected rate hike. With the current economic outlook, that’s looking increasingly unlikely.
What if you’re risk-averse?
If a rate increase would seriously impact your finances, then locking in early might give you peace of mind. There’s no one-size-fits-all answer here as it depends on your comfort with uncertainty and your financial situation.
Summary
Timing your mortgage refix isn’t just making a knee jerk decision when the Lender tells you to. It’s about understanding the market, your options, and your own financial goals.
So, feel free to reach out if you need a hand making the right decision, or just to have a chat about this, pick up the phone and call 0800 LENDER (536337) or email to [email protected]
