Looking at mortgage rates recently has been a little like the limbo - just how low will they go?

Fixed mortgage rates have been steadily falling over the past few months and with the official cash rate at historically low levels, many homeowners are coming to the realisation that now could be a good time to fix their mortgages.

However, the question remains, for how long? Not long ago an 8 per cent fixed-rate mortgage was considered a bargain, but with most banks currently offering one-year fixed rates of 5.25 per cent, most borrowers won't even consider anything above 6 per cent.

Squirrel mortgage broker John Bolton said the best value for money at the moment is between two and three years.

"It would be fair to say that though the carded rates are at 5.2 per cent for a year, 5.5 per cent for two years and 5.8 or 5.9 per cent for three years, but the reality is you can negotiate rates below that level and I think two or three-year fixed rates certainly look attractive at getting down to rates well below 5.5 per cent."

Some bank economists forecast the Reserve Bank will hold the OCR until March next year and will then increase the rate to around 4.0-4.5 per cent over the next two years.

With rates so low some homeowners might want to lock their mortgages in for a good few years, but ANZ interest rate strategist David Croy said any decision to fix long-term should not be taken lightly.

"If you fix for a longer period right now you might actually find you're still locked in if with a few months or years to go at a point in time when interest rates are actually lower or another longer term is more advantageous and you won't be able to take advantage of that just because you've been fixed in," said Croy.
 
BNZ chief economist Tony Alexander said it was important to look at your personal financial circumstances before making a decision.

"I think the longer you go you do get the greater certainty on interest rates, but you reduce your ability to make early repayments - if you come into some money for instance - and also the fixed interest rates for long terms are relatively expensive, especially compared with floating, fixing for 12, 18 or 24 months," said Tony Alexander.

"Personally at the moment I'm not much of a fan of going beyond three years fix."

Last week Westpac announced increases in its 18-month fixed mortgage rate to 5.65 per cent from 5.55 per cent.

It followed a similar rise by BNZ the week before, who raised its 18-month fixed rate by 45 basis point to 5.55 per cent. For the four-year term, Westpac's new 6.35 per cent rate is above most of its main-bank competitors who offer rates between 6.10 per cent and 6.25 per cent.

The Cooperative bank has the lowest four-year fixed rate at 6.05 per cent.

Some people believe that the much publicised mortgage rate war is nearly over and now is the time to negotiate with your bank for an even lower fixed rate.

"The key requirement is that you have about 15 per cent equity in the property so once you're loan is down to less than 85 per cent I think you have a lot of negotiating power and at that point there's no harm in testing the market and seeing what you can get," Bolton.

"I think if you've got a decent sized loan then you'll be quite surprised just what sort of deals you can get out there at the moment."

Alexander cautioned borrowers against taking too long a bet as rates are susceptible to a number of factors, some not even related to the economy.

"It's difficult to know when it comes to banks' mortgage rates because only part of it economics and a lot of it is simple marketing and the degree of competition between the banks, so anything is possible when it comes to those rates," said Alexander.

"All I can say is from an economist point of view, frankly what happens in the next 24 hours depends on Europe. There's a lot of uncertainty out there.

"Personally, if I were borrowing at the moment and wanted to get some fixed interest rate cover I would probably look at the three-year area. That's relatively cheap - and these rates - let's be honest, they are the lowest since about the 1960's so I wouldn't look a gift horse in the mouth quite frankly."

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