These are the borrowers getting the biggest benefit from falling interest rates in 2025

11:32 am today

Susan Edmunds, Money Correspondent

A mans hand holds NZ dollar bills against a front of a traditional villa house in Auckland, New Zealand. Buy, sale, real estate, insurance, mortgage, bank loans and housing market concept.

People who have a one-year fix coming up for renewal in February may see a big interest rate drop. Photo: 123RF

Interest rates are likely to fall further this year, bringing relief to many homeowners.

But it may be people who have a one-year fix coming up for renewal in February who experience the biggest interest rate drop this cycle.

Infometrics chief forecaster Gareth Kiernan, said combining one-year rates to date with the projections for the coming months indicated that people in February refixing a one-year loan for another year would have an interest rate drop of between 1.6 and 2.1 percentage points.

That would be the biggest refix saving since 2009.

On a $500,000 loan, that could be mean a reduction in payments of up to $150 a week.

Between March 2008 and March 2009, a refixing one-year borrower would have saved 4.1 percentage points. Between April 1998 and April 1999, the drop would have been four percentage points.

But Kiernan said the easing over a one-year period was comparable to most other cycles.

03082016 Photo: Rebekah Parsons-King. Gareth Kiernan, Economist

Infometrics chief forecaster Gareth Kiernan. Photo: RNZ / Rebekah Parsons-King

Mortgage adviser Karen Tatterson, from Loan Market, said she had been dealing with a few clients this week coming up to refix.

Many were coming off rate of 7.05 percent or 6.95 percent, she said, and were refixing for six months at 5.99 percent or a year at 5.59 percent or 5.69 percent.

"In fact I have had one client this morning who has come off a six month rate at 7.09 percent and is moving to 5.59 percent for one year - a reduction of 1.6 percent.

"She had chosen to keep her repayments the same and we can see this is going to make a big difference to the remaining loan term for her.

"It does depend on personal circumstances which way they jump either taking the lower repayments and keeping the repayments the same. This is why it is really important that they speak with an adviser to review their goals and ascertain the best rate or term for them individually. The mix of clients in the past week sits at around 50/50 with half retaining the same repayments to focus on faster debt reduction and the other half taking the lower repayments to free up some household income."

Kiernan said it should be the case that falling interest rates would give households more confidence to spend as the year went on.

"Electronic card spending numbers have shown a 1.5 percent increase in the value of core retail spending - excluding automotive and fuel- between July and November, which is the best run for spending since early 2023 - the value of spending had fallen for 11 of the past 13 months.

"The pick-up, modest though it is, has come through sooner than we might have expected given the labour market is still softening and confidence around job security remains low. We're still cautious about prospects for spending growth throughout the first half of this year due to the labour market situation, but we expect spending activity to gain more momentum from mid-year as the positive effects of lower interest rates, rising employment, and higher export prices all combine."