If you’ve been watching rate headlines, you might wonder what actually drives those numbers — and why some lenders move faster than others. Here’s a plain-English guide to how banks set mortgage rates in New Zealand.
1) The role of the Official Cash Rate (OCR)
The Reserve Bank sets the Official Cash Rate. When the OCR rises, banks’ funding costs go up and mortgage rates usually follow; when it falls, lending can get cheaper. The full effect typically takes months to flow through, and fixed loans don’t change until their term ends.
2) Where banks get their money
- Customer deposits: savings and term deposits that the bank pays interest on.
- Wholesale markets: funds borrowed from other financial institutions.
- Offshore funding: influenced by global interest rates and credit conditions.
Banks juggle these sources to keep margins stable. If mortgage rates fall too far without deposit rates moving, savers may withdraw funds — so pricing is always a balancing act.
3) Why longer fixed terms cost more
Uncertainty equals risk. Committing to a rate for 3–5 years is riskier for lenders because funding costs could rise later. That’s why longer fixes usually carry a small premium over short terms.
4) Global influences
Even without an OCR change, shifts in overseas funding markets can nudge NZ mortgage rates up or down. Local banks are plugged into global credit conditions, not just the RBNZ.
5) What you can control (your loan strategy)
- Split your lending: mix short and medium fixes for balance and flexibility.
- Use offset or revolving credit: park spare cash to reduce interest.
- Refix smart: review options ahead of expiry; grab specials early if available.
- Make extra repayments: even small amounts on floating or short fixes cut total interest.
Example — Tauranga homeowner
A Papamoa couple split a $650k loan: half fixed for 1 year, half for 2 years. This gave partial certainty and the option to refix sooner if rates eased. At renewal, we shifted both portions to sharper specials and saved roughly $2,800 over 12 months.
Bottom line
Mortgage rates reflect the OCR, global funding costs, and each bank’s risk settings. You can’t set the market — but you can choose a structure that fits your goals and budget.
Book a free chat to review your options with a local mortgage broker Tauranga and tailor your home loan Tauranga strategy.
Best Mortgages — Operated by Ewald Biesenbach (FSP 320426) under The Best Limited (FSP 724451 – NZBN 9429043352067). Licensed under the Financial Services Legislation Act 2019.How do lenders use the Official Cash Rate (OCR) to set mortgage rates?
The OCR, set by the Reserve Bank, influences the cost of money banks borrow. When it rises, funding costs increase and mortgage rates usually follow. When it falls, banks can reduce rates if other funding sources allow. A mortgage broker Tauranga can help you understand how OCR changes might affect your next refix.
What’s the difference between fixed and variable mortgage rate calculations?
A fixed rate stays the same for a set period, giving repayment certainty. A variable (floating) rate can change at any time with market conditions or OCR shifts. Fixed loans are ideal for stability; variable loans suit flexibility and extra repayments. Many borrowers split their home loan Tauranga between both to balance risk and control.
How does daily interest accrue on a mortgage balance?
Interest is calculated daily on the remaining loan balance, then charged monthly. Making extra or earlier payments reduces the balance sooner, which means less total interest over the life of your loan. Even a small extra payment each fortnight can shorten your term by years.
What factors can help me get a lower mortgage rate?
Banks reward lower-risk borrowers. A strong credit history, higher deposit or equity, stable income, and low debt-to-income ratio all improve your chances. A broker can compare multiple lenders to find rate specials and cash-backs you may not access directly.
How can I calculate my monthly mortgage payments?
Use an online mortgage calculator to estimate repayments by entering your loan amount, term, and interest rate. This gives a guide but doesn’t include future OCR changes or lender fees. For accurate figures and loan structure advice, speak with a mortgage broker Tauranga who can model real-world scenarios.
