Short term the cheapest option over next five years: ASB

The bank's economists suggest the "tick shaped" borrowing curve – with cheaper 1 to 3 year rates – means borrowers will be better off taking out shorter-term loans than opting for longer-term financing over the next five years.

While the mortgage borrowing curve is flatter than historical averages, 1 and 2 year loans are 0.85% cheaper than 5 year rates, the bank says. The lender does not believe mortgage rates will go much lower in this cycle, with upward pressure on fixed rates and the reduced chance of large cuts to the official cash rate next year.

The bank's economists, including Nick Tuffley, said: "While the future is inherently uncertain, our forecasts for carded rates suggest fixing at the lowest rates on offer then subsequently rolling short terms (eg 1 or 2-year fixed rates) is likely to be the cheapest option over a 5-year time horizon."

The bank believes the OCR will only be cut "one more time" in 2020.

"Mortgage interest rates could potentially move lower still, but we note that they could also move higher," the bank's economists said.

Longer fixed rate terms could move higher than current levels over the next couple of years: "At this juncture our forecasts (assuming the RBNZ cuts the OCR) suggest floating and the six-month mortgage rates could dip slightly lower over the year ahead, but the longer fixed terms risk moving higher than today’s levels over the coming one to two years."