What's the best mortgage strategy?

As further official cash rate cuts look less likely, are borrowers better off choosing short or long-term loans? ANZ has released a new report on the the dilemma facing homeowners.

Borrowers may be better off choosing longer mortgage terms if wholesale rates rise further, according to the lender.

In the big four bank's latest property focus, economists led by Sharon Zollner say borrowers looking for greater certainty may be better off locking in a longer-term deal.

It comes as wholesale rates creep up this year, with markets pricing in the reduced odds of further official cash rate cuts in 2021.

ANZ said it "started leaning in the direction" of longer-term rates last month, having noticed an increase in global long-term interest rates. Global rates are now between 80 and 120 basis points above November levels.

The bank's team said: "With the OCR on hold for the foreseeable future, we remain confident that borrowers will be able to enjoy low mortgage rates for some time. That’s because 1-2 year rates don’t typically move too far during periods of OCR stability, and banks are continuing to compete for business at the short end of the curve.

"However, borrowers who want to fix for a longer period in order to lock in some certainty may wish to look to longer-term fixes now, mindful that wholesale 4 to 5-year interest rates (the building blocks of 4 to 5-year mortgage rates) have risen sharply."

The lender's analysis will give food for thought to advisers and their clients ahead of the Reserve Bank's latest official cash rate decision next week.

Economists increasingly predict that the RBNZ will keep rates at current levels, and say that the OCR has troughed in this cycle. 

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