The 2.65% one-year term is set to become the cheapest in the market, edging ASB's 2.69% two-year rate, which came into effect at the weekend.
Kiwibank's new rate is effective from May 25, and represents a cut of 34 basis points.
The cut comes alongside a series of other rate reductions. Kiwibank's two-year rate falls to 2.79%, a drop of 60 basis points.
The state-backed bank's three-year rate is now 3.25%, four-year is out at 3.45% and five-year at 3.55%.
The cuts represent heated competition in New Zealand's home lending market following pressure from the Reserve Bank to drive down mortgages.
Kiwibank's head of borrowing and deposits Chris Greig said the new low rates would help borrowers "get ahead and fulfil their home ownership goals, as well as supporting those over the longer term who might be in a tougher position due to the impact of Covid-19".
Kiwibank's new rates are available to new and existing customers with at least 20% equity.
Greig said Kiwibank would "continue to review our rates to ensure that we are competitive".
BNZ also launched lower rates on May 25. The bank will offer 2.99% to owner-occupiers and investors on 18-month to five-year rates, and 2.79% on a one-year term.