To fix or float the mortgage?

Are home-owners better off fixing or floating their mortgage? Photo/Getty Images.

Most home-owners will be better off fixing their mortgage for the next one to two years than sitting on a floating rate despite anticipation of a cut to the official cash rate, brokers say.

The Reserve Bank is due to announce its latest decision on the OCR on Thursday.

Punters are divided as to whether there will be a cut so soon but many expect it to drop this year.

Cutting the cash rate typically results in banks making immediate changes to the floating interest rates on mortgages.

But James Lockie of finance company General Finance said the OCR would have to drop a lot to make it worthwhile waiting for because current floating rates are that much higher than the fixed rates.

According to interest.co.nz the floating rates for the major trading banks range from 6.59 to 6.75 per cent.

But locking in a mortgage for a year could cost as little as 5.25 per cent.

Fixed rates have been tumbling at the banks in recent weeks as the cost of wholesale borrowing - what it costs the banks to borrow - has fallen.

"The one and two year rates are particularly attractive," Lockie said.

The fixed rates don't change as a direct result of the official cash rate moving.

Karen Tatterson, a mortgage broker with Loan Market said most of her clients were looking at fixed for the short term around six to 12 months because of the whole percentage point difference.

Tatterson said Kiwis typically preferred to fix their mortgages compared with Australians who had a preference for floating mortgages.

Even though fixed rates had fallen Tatterson said it was still worth trying to negotiate a lower rate than the one advertised.

"Yes we are getting negotiation and even against the special rates."

Tatterson said mortgage-holders could expect to get rates in the low fives for one or two years fixed although she had heard of some who had negotiated under 5 per cent.

The timeframe to fix depended on people's individual circumstances and whether they wanted surety or had a fixed budget.

"There is no point on looking for three years fixed if you plan to move in 12 months."

Tatterson said she did not expect the official cash rate to fall on Thursday but did expect it to happen this year, probably towards the end of the year.

But Jeff Royle, a mortgage broker with iLender is picking a cut on Thursday.

"I think it will be cut by 25 basis points and another 25 by the end of the year."

But he said even with a cut it was hard to justify going on a floating mortgage rate because of the big difference between the two.

"I certainly wouldn't recommend a customer puts their mortgage on a floating rate."

Royle said the fixed rates were very competitive at the moment as banks were fighting each other to try and get more market share, particularly to borrowers with equity or a deposit of more than 20 per cent.