How to prepare for rising mortgage rates

Interest rates on mortgages are on the move upwards, with banks increasing some already. Mortgage adviser Ryan Smuts, of Kris Pedersen Mortgages, explains what it means for your mortgage and the key things to think about.

With interest rates increasing, we’re recommending to clients that the first step is to review your situation. Ask yourself questions like:
• When do your current fixed rates expire? I.e. all at the same time, or are they split over different terms?

• What current rates are you paying? i.e. are they reflective of today’s market rates, or should you be looking at breaking and re-fixing?

• What is your current repayment type? i.e. are you paying principal and interest, or interest only? Are you making minimum repayments?

• When is my interest-only expiry date? In many cases this can be different to your fixed rate expiry date, as they are independent of one another.

The savvy mortgage client stays ahead of the curve by asking similar questions and figuring out what their strategy is and what they want to achieve, and then aligns their debt repayment strategy for that. 

Are the record lows gone?
For several years now we’ve seen interest rates steadily decreasing. As recently as June, many economists were predicting that it would be mid-late 2022 before we would see the Reserve Bank (RBNZ) raise the Official Cash Rate (OCR). This situation has changed very quickly with the market now pricing in a 90% chance that the rate will increase at the next review in mid-August. If this happens, it’ll be the first increase the market has seen since 2014.Some banks have already increased rates. 

What does this mean for borrowers?
Here’s a few examples to see what the numbers could look like. I’ve compared a few rate terms based on a $600k mortgage.

Until recently, you could get: 
• 1-year mortgage rates from most banks at 2.19%, which can now be as high as 2.55%

• 3-year mortgage rates from most banks at 2.79%, which can now be as high as 3.29%

• 5-year mortgage rates from most banks at 3.69%, which can now be as high as 3.99%

Comparable payments (which can be found on our calculator here - link) are as follows on $600k of debt:


Source: Kris Pedersen Mortgages calculator

What are the key points to think about?
1. Keep in mind that the increasing rate is more amplified over longer-term fixed rates – for example with the 0.50% increase on the 3-year rate, that’s 0.50% extra per year. The reason I highlight this, is that if you’re wanting to lock in certainty, it would make a lot of sense to do it sooner rather than later, before rates go up again.

2. I’ve split the table up by repayment type, so that you can also see what happens if you go from interest only, to principal and interest. Note however this is based on P&I over a 30-year term. Chances are if your interest-only period expires, you’ll go to a 25-year term, or less, which means that the jump in payments might be even higher.

3. At the moment around 80% of fixed mortgages expire within the next 12 months (many people have recently locked in 1-year). As rates are predicted to go up further, it might be worth considering breaking your 1-year rate and locking in for longer now, to secure better interest rates.

Everyone’s situation is different
There is no one-size-fits-all strategy, so the above might not be suitable for you. Look at your future plans, and review your existing debt position in accordance with this. In addition, at this time I’d definitely be recommending splitting your debt so you don’t have everything on one rate, particularly if you carry larger amounts of debt (e.g. property investors).

Information correct as at July 2021. Pie Funds Management Limited is the issuer and manager of the JUNO KiwiSaver Scheme. Click here for our Product Disclosure Statement. Any advice is given by Pie Funds Management Limited, and is general only. It relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees if you act on any advice. As manager of the Scheme we receive monthly fees that are determined by your balance and whether you are 13 years or over. We will benefit financially if you invest in our products. We manage any conflicts of interest via an internal compliance framework designed to ensure we meet our duties to you. For information about the advice we can provide, our duties and complaint process and how disputes can be resolved, visit All content is correct at time of publication date, unless otherwise indicated. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary. Please let us know if you would like a hard copy of this disclosure information.