How the OCR affects your Mortgage Repayments

At Properli, we know that understanding how interest rates affect your mortgage is key to staying in control of your finances. One of the biggest drivers of mortgage changes in New Zealand is the Official Cash Rate (OCR) set by the Reserve Bank of New Zealand. With the next OCR update scheduled this Wednesday, the 26th November, now is the perfect time to understand how this can impact your repayments and borrowing decisions.

1. What is the OCR?

The OCR is the benchmark interest rate that the Reserve Bank sets to influence the cost of borrowing and the overall economy. It’s also the rate at which the Banks borrow money from the Reserve Bank.

It affects:

• How much interest banks pay to borrow money.
• How much banks charge you for home loans and variable-rate products.
• The broader housing and lending market in New Zealand.

When the OCR rises, borrowing costs typically increase. When it falls, it becomes cheaper to borrow.

2. How the OCR affects your mortgage

If you have a floating or variable-rate mortgage, your repayments are directly affected by changes to the OCR. For example:

• OCR Increase: Your bank’s floating rate may go up, meaning your monthly mortgage repayments rise.
• OCR Decrease: Your bank’s floating rate may drop, lowering your repayments.

Fixed-rate mortgages are not immediately affected by OCR changes, but lenders may adjust new fixed rates based on the RBNZ’s decisions and movements in the wholesale interest rate market.

3. Why OCR updates matter

Every OCR update signals the Reserve Bank’s view on inflation, economic growth, and financial stability. For homeowners, this translates into:

• Budget planning:  OCR movements will directly affect your mortgage repayments over time, so having a strong budget in place will help you manage any fluctuations with confidence. 
• Refinancing decisions:  With rates likely to drop, securing a lower rate can decrease your mortgage repayments and free up funds to finally tackle the goals or purchases you’ve delayed. 
• Investment strategy: When rates begin to drop, we typically see property investors re-enter the market as cashflow becomes more favourable. Ensuring the right setup and structure from the start is a vital part of any successful property investment.
  
  

  Client Example: Taking Advantage of Lower Interest Rates

  With interest rates trending downward, many clients are unlocking meaningful savings on their mortgages. Here’s a recent example that shows what’s possible:

  Client Profile

  • Couple with 1 child
  • Total household income: $160,000
  • Current mortgage: $750,000 @ 5.75%
  • Weekly repayments: $1,009

  What We Did
  We refinanced their mortgage to another bank offering a sharper rate and a strong cash incentive.

  New Offer Secured

  • New fixed rate: 4.49%
  • Cash incentive from new bank: $11,000
  • New weekly repayments: $876

  The Outcome

  • Weekly savings: $132
  • Cash received: $11,000 (with approx. $7,000 accessible after costs)
  • Total annual savings: $17,864
  • Total weekly benefit: $343 (repayment savings + cash incentive averaged over the year)

4. How to prepare for the 26th November OCR update

• Review your current mortgage: Check if your repayments are fixed or floating and understand your exposure.
• Consider your options:  If rates are expected to drop, you could benefit from floating or re-negotiating your loan. 
• Speak to a licensed Financial Adviser: Getting professional advice can help you make the right decision for your circumstances and goals.

By understanding how it affects your mortgage repayments and taking proactive steps, you can manage your home loan confidently and make the most of market opportunities.

At Properli, our experienced Financial Advisers monitor the OCR, market trends, and bank rates to help you make informed decisions about your mortgage. Whether you’re considering refinancing, fixing your rate, adjusting repayments or accessing your equity to purchase to help you purchase an investment property, we will guide you every step of the way so you can stay ahead in a changing market.