The Mortgage Rate Paradox: Why Your Payments Could Fall Even as Rates Rise
It’s a confusing time for homeowners. Interest rates are inching upwards, yet many borrowers are poised to see their monthly mortgage payments decrease in the coming months. This isn’t a contradiction, but a result of the unique dynamics of fixed-rate mortgage refixing, according to recent analysis from BNZ chief economist Mike Jones.
The ‘Year of the Refix’ and What It Means for You
2025 is being dubbed the “year of the refix,” and for good reason. A staggering 81% of mortgage holders are scheduled to renegotiate their fixed rates this year – the highest percentage in 13 years. This wave of refixing is the key to understanding why payments are likely to fall, even with broader rate increases. Essentially, many are rolling off significantly higher rates locked in during the peak of the rate hike cycle.
Looking ahead to 2026, approximately 68% of fixed-rate loans will require renewal. The next six months, however, represent the most significant period for these renewals, with around $132 billion (34% of total borrowings) coming up for renegotiation – well above the long-run average of 27%.
How Much Could You Save? A Real-World Example
The potential savings are substantial. Consider a $300,000 loan. If you locked in a rate of 5.74% a year ago, you could potentially refix today at around 4.5%. This translates to a monthly interest saving of just over $300. While rates are starting to stabilize, the average rate paid in November was 5.17%, down from a peak of 6.39% in October 2024. Experts predict rates could dip to 4.5% by mid-year.
The Ripple Effect: Cash Flow and the Economy
This influx of cash into household budgets is expected to provide a boost to the economic recovery. However, the impact isn’t straightforward. While some borrowers are choosing to accelerate their mortgage repayments – effectively paying down their debt faster – others are using the savings to offset rising living costs. A portion is also finding its way into discretionary spending, offering some support to the retail sector, though the effect is currently modest.
This trend of prioritizing debt reduction is a positive sign for long-term financial sustainability. It suggests a shift towards more cautious financial behavior among homeowners.
Why Rates Are Falling for Refixers, Even as They Rise Overall
The situation is somewhat paradoxical. While headline interest rates may be creeping up, the “slow-moving nature of the refixing beast” means that the average borrower coming up for renewal is likely to secure a lower rate than they were previously paying. This is because they are refinancing *from* the higher rates of the past, *to* the currently (though slowly) declining rates.
Experts estimate that we’re about 80% of the way through this process of refixing onto lower rates, with roughly 25 basis points of easing still expected over the next six months.
Beyond Refixing: The Future of Mortgage Rates
The average home loan rate is expected to bottom out around the middle of the year, remaining at a relatively supportive level throughout 2026. This suggests a period of stability after the significant fluctuations of the past two years. However, economic conditions and inflation will continue to play a crucial role in determining the long-term trajectory of mortgage rates.
Frequently Asked Questions (FAQ)
Q: What is a mortgage refix?
A: A mortgage refix is when your fixed-interest rate period ends, and you renegotiate a new rate with your lender.
Q: Should I fix for a longer or shorter term?
A: It depends on your risk tolerance and expectations for future rate movements. Shorter terms offer flexibility, while longer terms provide certainty.
Q: What if interest rates rise before my refix date?
A: You’ll likely have to pay a higher rate, but you can still shop around for the best deal.
Q: Can a mortgage broker help me?
A: Yes, a mortgage broker can compare rates from multiple lenders and help you find the best option for your needs.
Q: What is a basis point?
A: A basis point is one-hundredth of a percentage point (0.01%).
Want to learn more about managing your finances? Read our guide to creating a household budget.
Share your thoughts! Are you refixing your mortgage soon? Let us know in the comments below.
