Why falling interest rates aren't always a cue to splash some cash

With interest rates falling, your mortgage repayments may be about to get cheaper, but don't take that as a reason to go shopping, warns Frances Cook. Instead, treat it as an opportunity to get stragetic and make big gains for the future. Or if that sounds too harsh, maybe try a combo approach.

Interest rates are falling. I know. Breathe it in. That’s the sweet scent of a little breathing space—especially if you’ve got a mortgage.

But while you’re taking that much-needed exhale, it’s also time to think a few steps ahead.

Because yes, your repayments might drop a bit. But what you do with that extra wiggle room? That’s where the real wins are.

Here's how to play it smart when rates start dropping — and why now might be your moment to jump ahead.

Mortgage rates are dipping, and not by accident. With economic growth slowing, the Reserve Bank is under pressure to cut the OCR further.

Economists are already betting on another 0.25% drop in the near future. The major banks have all trimmed their home loan rates, and some are floating the idea of sub-6% being the new normal.

So you might soon be getting a letter in the mail from your bank, telling you that your rates are coming down.

But you don’t always get those better rates automatically. Reaping the benefits of the lower rates might involve refinancing or restructuring your mortgage — a proactive approach that could save you thousands over the life of your loan.

And that might mean switching to a different bank. After all, it makes sense that banks will compete for your business, though that's sometimes we tend to forget.

According to Roy Chowdhury, founder of digital mortgage platform Homely, many people feel like they should just be grateful their bank gave them a loan. When actually, he says, “we are the prize".

“They make a lot of money from our business,” he says. “You need to go and shop around and talk to multiple banks and get the offers.”

In fact, platforms like Homely exist to make it easier to compare multiple lenders at once — because banks don’t always show you their best deal unless you ask (or show them that you can get a better one elsewhere).

So don’t pay a loyalty tax by accident. If you haven’t reviewed your mortgage in over a year, now’s the time.

Everyone wants to know: Should I fix? Should I float? Should I split?

And the answer is: it depends. (Yes, annoying, I know.)

Here’s the thing, your mortgage strategy is more dependent on what’s happening in your life, than what’s happening in the headlines.

Got bonus payments coming? Consider keeping part of your loan floating, so you can smash lump sums onto it without penalty.

Or maybe you’re a self-employed worker with an irregular income. If your money comes in lumps, you might want just a portion on floating, so that you can make the most of big windfalls. Then the rest is locked in at the lowest rate you can find, to give yourself the stable base through leaner periods.

Or do you prefer full certainty, maybe because you’ve got kids, or a really tight budget? Lock in a low fixed rate now and breathe easier.

One of the best parts of a falling rate environment? The chance to pay off your loan faster without feeling as much of a pinch.

Let’s say your repayments drop by $50 a week. You could go and get your nails done. Hey, it’s been a while.

Or… you could keep paying the old amount and knock years off your mortgage.

If you're torn between allowing yourself a treat or two, and sensibly upping your mortgage payments to get ahead in the future, you can hedge your bets.

That’s what Nicole Pervin, general manager of home lending at Kiwibank, recommends. “A lot of people are feeling relief right now, and that’s valid. But if your repayments are dropping, that’s actually your golden opportunity to get ahead," she says.

“You’ve already been making those higher payments, so your budget’s adjusted to it.

“Instead of taking the full reduction, ask yourself: could I go halfway? Could I enjoy a little breathing room and still stay ahead?

“Even keeping just part of that higher repayment going makes a huge difference to the life of your loan. It doesn’t have to be all or nothing.”

Even small extra payments make a big dent because they go straight toward your principal. No interest, no fees, just progress.

So each extra dollar you put on to the mortgage can actually be worth two or three dollars, because of all the money you save. That’s a powerful saving.

Be honest. Are you the type to make an extra payment… or spend that money on a spontaneous mid-week Uber Eats splurge?

No shame either way. Just pick a mortgage structure that works with your reality.

If you’re not disciplined with manual payments, structure your repayments a little higher and lock them in.

If you love flexibility and know you’ll actually use it, keep a portion floating so you have the freedom to smash into it with every extra dollar you can scrape together.

The rates are falling. That’s great. But the smartest mortgage move? It’s one that’s built around you, not a headline.

The information in this article is general in nature and should not be read as personal financial advice.