The Reserve Bank of New Zealand (RBNZ) has reduced the Official Cash Rate (OCR) to 3.25%, down from 3.50%, following its May 2025 review.
The big question now is: how much lower can rates go, and what should borrowers do next? Should you continue floating in the hope of more cuts, or make a move and fix?
Let’s explore the RBNZ’s current thinking, what economists are saying, and how that might help guide your next decision.
Where are we in the interest rate cycle?
We’re now sitting at the upper end of the RBNZ’s neutral range, which it defines as between 3.00% and 3.25%.
- The RBNZ has stated it’s willing to cut rates further if needed, particularly if global tariff issues reduce demand or if domestic conditions soften further.
- At the same time, it’s prepared to raise rates if inflation risks return, especially if we see a supply-side shock such as a sharp rise in oil prices or freight costs.
What economists are saying;
Most major bank economists expect the OCR to bottom out between 2.50% and 3.00%, due to:
- Softer domestic demand,
- Weak labour market conditions,
- Global uncertainty weighing on investment and trade.
What that means for borrowers
There is still a mild downward bias in rates, but compared to earlier in the year, it’s not as compelling. The opportunity to benefit from staying on floating is more limited, and certainty is becoming more attractive.
How to choose your interest rate strategy
When we help clients make decisions about their home loans, these are the four key factors we look at:
1. Align With Your Life Events
- Planning to sell soon? Or expecting a large lump sum like a bonus, inheritance, or business payout? Staying on floating—or fixing for a short period—helps avoid the risk of early repayment fees.
- Need flexibility? Keeping part of your loan on floating or on a short-term fixed rate gives you the freedom to make changes, access redraw, or restructure later.
2. Understand the market context
There’s still some room for fixed rates to fall, but the pace is likely to slow.
- Banks typically price in expected OCR changes well in advance. When the OCR peaked, 12-month rates hit 7.39%. Now they’re around 4.89%—a 2.50% drop, while the OCR has come down by 2.25%.
- As we approach the bottom of the cycle, any further changes will likely be smaller. That makes the certainty of a longer-term fixed rate more appealing for many borrowers.
3. Compare rate combinations
As an example if you’re hesitant to lock in a 24-month rate, you might consider breaking it up.Here’s an example:
| Option | Rate |
| Fix 24 months | 4.92% |
| OR: 6 + 18 split | 5.29% (6m) + 4.79% (18m) |
If the 18-month rate drops below 4.79% when you come to refix, this strategy puts you ahead overall. You can apply the same logic with a 12 + 12 month split.
4. Consider interest rate averaging
A smart strategy in uncertain times is rate averaging, splitting your home loan across different terms.This approach gives you a natural hedge.
- If rates go up, only part of your loan is exposed. If they go down, you’ve still got some flexibility.
- However, keep in mind: the wider the spread (e.g. part fixed for 6 months, part for 3 years), the more insulated your total repayments become from market changes—both up and down.
In my view, the less clear the trend is, the wider you can spread your mix of rates.
Upcoming OCR Review Dates
The next two OCR decisions are scheduled for:
- 📅 Wednesday, 9 July 2025
- 📅 Wednesday, 28 August 2025
These will be key dates to watch for borrowers weighing up whether to float or fix.
Floating vs. Fixed: Let’s Run the Numbers
If you’re currently floating at 6.15% (a common discounted rate), here’s how much fixed rates would need to drop by for floating to be the better short-term option.
| Term (Months) | Fixed Rate | Month 1 | Month 2 | Month 3 |
| 6 | 5.29% | 0.14% | 0.29% | 0.43% |
| 12 | 4.89% | 0.11% | 0.21% | 0.32% |
| 18 | 4.85% | 0.07% | 0.14% | 0.22% |
| 24 | 4.92% | 0.05% | 0.10% | 0.15% |
| 36 | 5.04% | 0.03% | 0.06% | 0.09% |
What This Means
- If you plan to float for just one month, you’d need the 6-month fixed rate to fall by 0.14% or more for it to be worth waiting.
- For longer fixed terms, the benefit of floating is smaller. For example, the 36-month rate only needs to drop 0.03% to justify waiting one month.
Key Insight: Waiting is more valuable if you plan to lock in for longer—less so for short-term fixes.
Final Thoughts
Rates may still trend down a little further, but we’re now in a much more stable phase of the cycle. That makes it a good time to shift your focus from chasing the lowest rate to building a loan structure that fits your needs.
If you’d like to run the numbers on different loan splits or strategies, we can help.
Ready to Review Your Mortgage?
Book a free chat with your Twine adviser. Whether you’re fixing, floating, or doing a bit of both, we’ll help you build a structure that balances cost, flexibility, and peace of mind.
