It is now possible to get a floating mortgage just below 6 percent in New Zealand. If you are looking for a one- or two-year fixed mortgage, you can negotiate a rate just below 5 percent.
But it hasn't always been the case that fixed rates are lower than floating rates.
From March 2009 until November last year, the average bank fixed rate for terms of up to five years was higher than the average bank floating rate. That reversed a pattern from 2003 to 2009, when the average fixed rate was below the average floating rate.
Fixed rates are more dependent on what is happening in offshore markets. The overseas markets have had near-zero interest rates for a long time. That means a bank can borrow money below 1 percent in Europe. Even after allowing for the currency conversion, they will have come out well ahead when they lend that money to New Zealand homeowners.
Here is my chat with Paul Henry this morning about interest rates.
The fall in rates has prompted many people to consider breaking their fixed mortgage. But should they?
People with mortgages are welcoming the latest cut to the official cash rate (OCR). But it is not such good news for anyone with a savings account or term deposit.
Term deposit rates vary from as low as 2 percent for some one-month deposits, to just over 4.5 percent from some five-year terms. The rate a customer will get will also depend on the amount of money they have to invest.
Once you factor in tax and the rising cost of rates, electricity or rent, there will be many people who will feel like they are going backwards.
Some analysts think this could prompt even more people to consider a property investment, further fuelling the housing market.
But it might also see more people invest money in shares, either directly or through a managed fund.
Share markets can benefit from low interest rate environments as investors move away from bank deposits towards investments that offer a higher yield.
Of course these investments offer higher risk and people do need to consider that global share markets have had a very good run over recent years and many company valuations are high.
If rates continue to fall the New Zealand dollar will continue to go down too which will boost the returns for investors who have put money into offshore investments.
Morningstar reported this week that the falling New Zealand dollar was a key driver for KiwiSaver funds in the three months to June.
Its Australasia director of manager research Tim Murphy said: "KiwiSaver funds with unhedged exposures to Australian and international equities benefitted the most."
Morningstar says although international equity markets were relatively flat during the quarter, they rose 10.6 percent in New Zealand dollar terms. The Australian S&P/ASX 200 index fell 6.6 percent in Australian dollar terms, but gained 4.3 percent in New Zealand dollar terms. The local sharemarket was subdued as it experienced its first negative quarter in three years, the NZX50 was down 1.8 percent.
The New Zealand dollar strengthened after the Reserve Bank's announcement that the OCR was being cut. The Kiwi rose above 66 US cents and at one point looked like getting close to 67 cents. It has lost some ground but at just over 66 cents is higher than it was before the OCR cut was announced.
Isn't the dollar meant to go down when rates fall? Typically yes, because lower returns on interest rates mean offshore investors are less likely to bring their money here and might in fact take some money home.
But the currency markets had sold the dollar down in the run up to yesterday's announcement. Some traders had started to think a rate cut of half a percent was on the cards.
A lot was made of the fact that yesterday's statement from the Reserve Bank did not contain references to the New Zealand dollar being "overvalued". Nor were words like "unjustifiable" or "unsustainable."
The Reserve Bank did say that "further depreciation is necessary given the weakness in export commodity prices".
BNZ currency strategist Raiko Shareef summed it up, saying "it was a material downgrade in angst".
The New Zealand dollar was trading at 66.14 US cents at 8am today, compared to 65.84 before yesterday's OCR announcement.
It was 89.92 Australian cents, compared to 89.33 at 6am yesterday.
It was 42.62 pence, compared to 42.23 yesterday.
The Kiwi was 60.16 euro, compared to 60.39 euro at 6am.
The drop in the OCR is welcome news to manufacturers and exporters.
The Employers and Manufacturers Association says the drop "keeps us competitive and is in line with what we've said previously. We were deeply concerned when the OCR increased last year, but have been pleased with the downward trend over the past few quarters".
Chief executive officer Kim Campbell is also keen to encourage people not to become gloomy about the economy.
"Our economic fundamentals are strong, and we are still better placed than our major trading partners. There has been some downward movement in key indicators, but our economy is still growing at 2.5 percent. So let's not talk ourselves into a recession."
He says the cut in the OCR and a lower dollar will not only benefit manufacturers but also the tourism and education sectors.