ANZ New Zealand's economists say mortgage borrowers are facing a quandary when it comes to refixing their loans.
In their latest ANZ Property Focus report, they note wholesale interest rates, which feed into mortgage rates, are facing pressures from many directions.
"Wholesale interest rates have continued to rise in anticipation of Official Cash Rate hikes, as inflation fears percolate and as US, UK, and European bond investors worry about fiscal unsustainability," the report says.
"If sustained, that may, in time, put upward pressure on mortgage rates."
The report says over the last couple of months this has created a quandary for mortgage borrowers.
"Pay up for certainty, or choose a cheaper short term fix and accept there is a good chance you will roll onto a higher rate when it expires," the report says.
Based on ANZ's own forecasts for the OCR and wholesale interest rates, the report says the one to two year part of the curve is the "sweet spot" purely from a cost perspective.
"However, uncertainty is high and those worried about the possibility of inflation staying elevated and the Reserve Bank having to move more aggressively, may want to choose a longer term, or a mix of terms," the report says.
The bank's economists are picking three short, sharp OCR hikes of 25 basis points each, starting in July, as the Reserve Bank seeks to contain inflation.
"While our projections and expectations for a limited series of OCR hikes suggest that the one to two year part of the mortgage curve is the sweet spot, because those rates offer a good balance of cost and certainty, we can't stress enough that things could change quickly," the ANZ economists say.
"As we said last month, any forecasts should be taken with a grain of salt at this juncture."
ANZ NZ is NZ's biggest home lender with total exposure of more than $115 billion as of December 31 last year.
We welcome your comments below. If you are not already registered, please register to comment
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.