How long you should lock your mortgage to avoid high interest rates

Mortgage adviser says how long people lock in their mortgage depended on "affordability".
Mortgage adviser says how long people lock in their mortgage depended on "affordability". Photo credit: Getty Images

Krystal Gibbens for RNZ

Mortgage advisors are recommending people consider what they can afford when locking in a fixed term mortgage.

The future of mortgage rates continues to be uncertain, following the Official Cash Rate lifting a further 50 basis points and interest rates hiking at several major banks in the last month.

Loan Market mortgage adviser Bruce Patten said the "goal posts keep moving" and no one truly knew how high rates could go.

How long people locked in their mortgage depended on "affordability", he said.

If homeowners could afford the higher rates, they were sometimes looking at locking in for 18 months, in case rates came down, he said.

But for those who didn't have "affordability", but were able to budget for the current rates, Patten said they were tending to look "longer-term" and fixing in for two and three year terms.

It gave them some "consistency" in knowing what they will pay.

Patten said there had also been a "big call" for splitting mortgages across terms, as a way of "spreading" risk.

The benefit of splitting the mortgage term meant if rates dropped people would be able to transfer to lower rates sooner but equally their whole loan would not be impacted if rates hiked up, he said.

Patten's expecting inflation might start to wane in 2024, and interest rates may then start to come down.

Squirrel founder John Bolton said his personal view was that fixed interest rates "have largely peaked".

"We're still fixing customers largely for a year," he said.

But he was encouraging their customers to lock into slightly longer periods such as two years, if they could not afford rate increases.

With mortgages, the main thing he said was "making sure that you can afford it".

A lot of people were still on low rates and were having to adjust to a much higher rate environment, he said.

Many would be jumping from 3.5 percent to 6 percent in the first quarter of next year which Bolton said would be "a significant increase in fortnightly or monthly repayments".

"There's a bit of a belt tightening to come post-Christmas", he said.