It is always an exciting moment for homeowners when mortgage rates start to track downwards.

Climbing interest rates can be a killer for the family budget, eating into your earnings and reducing what’s available for all the other things you need to pay for.

But what is the best thing to do when the interest rates decrease?

Keep more money in your pocket? Pay more off the principal? Or invest in your future?

The answer will depend on your current situation, so let’s explore the options available to you.

The Burden Of A Mortgage

Since the interest rate heydays of Covid, many families have slowly been feeling the pressure of paying their mortgage. What would have felt manageable in 2020 started to become a real millstone. Every time the OCR crept up another few basis points, those once-affordable properties felt more and more like a burden on the family finances.

Typical of the Kiwi attitude, we simply soldiered on and resolved to ride it out. Finally, in 2025, interest rates are starting to ease to a level where mortgage payments feel more manageable again.

As many as 32% of fixed-term mortgage holders will have the opportunity to refix in the next six months. Another 12% of mortgages are currently on floating rates, so almost half of ALL mortgage holders will be able to fix at a new lower rate very soon.

So, how can you use this time to secure your family’s financial future?

The Rates Have Dropped, Now What?

Tens of thousands of homeowners are all facing the same decision as interest rates trend downwards. What should you do with the extra funds? It wasn’t so long ago that we were dealing with rates starting with a 6 or a 7. But now things are in a much more attractive 4-5% range.

If your fixed term is about to expire, these new rates could save you hundreds of dollars every month. So, what is the best thing to do with that extra cash?

You have a number of options:

1: Pocket the $$$

If things have been feeling incredibly tight each month and you are struggling to cover everything, you might consider adding some of that extra cash back into your household budget. It can reduce financial stress and make life just that little bit easier.

Around this time two years ago, in 2023, the average one-year rate was 7.1% and currently, most banks are offering around 4.49% for the same term. In dollar terms, that is quite significant! On a $500,000 mortgage, weekly repayments at 7.1% would be $775 per week. However, they drop to $584 per week at 4.49%.

That’s savings of almost $200 a week or over $10,000 a year! So, you could see some significant relief in your weekly budget, allowing you to get your head above water and breathe again.

2: Keep Your Repayments At The Same Amount

The math is simple: if you can pay more off the principal of your mortgage, it will reduce the term and the amount of interest you have to pay. So, if your current budget allows you to keep your mortgage repayments the same when refixing to a lower interest rate, it will help you save money in the long run.

Even paying small additional amounts can make a big difference to your overall loan term. You can shave months (or years) off your mortgage by paying a little bit more than the minimum amount every month.

Not only does this reduce the term of your mortgage, but it also provides you with a safety buffer. By paying more now, you will have a reserve of funds you can draw on if you become unemployed or experience an unexpected change in your income.

3: Invest The Extra

There are plenty of investment opportunities available. The right one for you will depend on your appetite for risk and your understanding of the investment market. Things like property or shares can be a good option, or you could simply increase the amount you put into your KiwiSaver.

Investing always carries a certain amount of risk, so you definitely want to seek expert advice before making any decisions concerning your hard-earned cash.

4: Build An Emergency Fund

While contributing additional funds to your mortgage or KiwiSaver is a good financial investment, it does make it hard to access your money if you need it suddenly. That’s why diverting the money saved on your mortgage payments into an emergency fund can be a great idea.

Ideally, every household should have enough to cover three to six months of expenses tucked away. This safeguards you in case anything happens to your current income.

You can simply keep this money in a savings account or in a low-risk fund like a term deposit. Just remember to check the fine print to establish how easy it is to withdraw the funds if needed.

The Right Decision For You

All four of the options we’ve just detailed are viable choices for a stronger financial future. Deciding which option is right for you will depend on the equity you have in your property, your current finances, your future goals, and your appetite for risk.

The friendly team at Mortgage Suite would love to chat through the options to help you decide how your future could most benefit from the reduced interest rates. Reach out to us today!