How to navigate decreasing interest rates

As interest rates decrease, we share some economic insights and five questions to help you make informed decisions about your money in a changing rate environment.

August 2025

A downward shift in interest rates

  • The Reserve Bank of New Zealand - Te Pūtea Matua (RBNZ) continues to relax monetary policy settings by lowering the official cash rate. In August, the official cash rate (OCR) was reduced by 25 basis points to 3%. Most importantly, the RBNZ signalled more cuts to come. Our economics team expect the cash rate to be fall below 3%.
  • This continues the OCR reductions that began in the last half of last year. These cuts aim to support the economy, boost confidence, and stimulate growth in the housing market.
  • Our Chief Economist Jarrod Kerr says, "Inflation has stabilised within the RBNZ's 1–3% target band. We're now more concerned about the emerging global growth risks amid tariff trade wars. The change in environment demands lower interest rates. This should mean that all interest rates, including mortgages, business and term deposit rates will continue to fall."

Check out our Economic Insights Hub for more detailed economic insight and commentary.

We are confident that interest rates will continue to fall throughout 2025."
Jarrod Kerr, Kiwibank Chief Economist

How to navigate decreasing interest rates

Donna Neville

Tauranga-based Donna Neville is one of our Mobile Mortgage Managers in Home Lending and has over nine years of experience helping Kiwi navigate their home ownership journeys. Donna has shared five important questions to help you make informed decisions about your money in a changing interest rate environment.

  1. 1
    Tahi

    Can you keep your repayments the same?

    If you're comfortable with your current repayment level, when interest rates decrease, you can opt to keep your payments the same. This means you pay more principal off your loan faster, while maintaining a buffer should your minimum repayments increase in the future.

    However, Donna acknowledges that not all Kiwi will be in a position to maintain their current repayment level and that's okay, too. "You've got to do what works for you and is best for you and your whānau," she says.

  2. 2
    Rua

    Can you hedge your position?

    Depending on what works best for you, you could split your home loan into multiple loans. For example, you could keep some of it on a variable rate and have multiple fixed terms for different time periods. This gives you a blended rate over time, rather than having your whole home loan on one fixed loan and risking a big adjustment in payments when the term runs out and it's time to re-fix. This approach could allow you to take advantage of lower rates in the market and the longer-term fixed rates could give you some certainty.

    To explore the different options available, Donna suggests using our repayments and structuring calculator or talking with one of our home loan specialists.

  3. 3
    Toru

    How is your home loan structured?

    There are many ways to structure your home loan. Donna suggests that variable rate options could be helpful for those in different financial situations that require a bit more flexibility.

    "Offset accounts are great if you want to build up your savings for future use, while revolving credit can be good if you have an irregular income or want greater control over your home loan" says Donna.

    To find out more, have a go with our repayments and structuring calculator to compare different structuring options, or get in touch with one of our home loan specialists.

  4. 4
    Whā

    What are your financial goals?

    With decreasing interest rates on the horizon, Donna recommends that you take a moment to stop and consider your goals. "Our products are designed around people's goals, such as 'I want to be debt-free' or 'I want to save this much.' Choosing the right product will help Kiwi reach their goals faster and have better financial success” she says.

    And it's always a good time to make or maintain good money habits, including building an emergency or rainy day fund for the future.

  5. 5
    Rima

    Is it worth breaking your fixed rate?

    Although you can break and re-fix your home loan at any point in time, there may be costs involved in breaking a fixed rate period. The cost of breaking a fixed rate can be significant, so it's important to fully understand the implications and balance it with any potential savings you might gain from a lower rate. Find out more on how we calculate fixed rate break costs.

    If you want to explore what it would cost to break your existing fixed rate to re-fix at a lower rate, our home loan specialists can help.

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This page provides general information and isn't intended as regulated financial advice. To review your specific situation and financial requirements please talk to one of our Kiwibank Representatives or your Financial Adviser.