OCR Timing vs Mortgage Strategy: Why Waiting for the Perfect Rate Is Risky

For many executives and high-income households, 2026 presents a familiar question:

Should we refix now, or wait for the OCR to fall further?

With inflation easing and commentary increasingly focused on rate cuts, it is tempting to delay decisions in anticipation of “better rates ahead.” However, mortgage pricing does not move in a straight line with OCR announcements. In reality, by the time a cut is confirmed, much of it has already been priced.

Understanding the difference between OCR decisions, wholesale swap markets, and retail mortgage pricing is critical before attempting to time the market.

Market Expectations vs Actual OCR Decisions

The Official Cash Rate is set by the Reserve Bank, typically eight times per year. These decisions are highly anticipated and widely reported.

However, financial markets do not wait for announcements. Traders, banks, and institutional investors constantly assess:

• Inflation data

• Employment conditions

• Global interest rate movements

• Forward guidance from the RBNZ

Based on these inputs, markets form expectations about future OCR moves. These expectations are reflected in wholesale interest rate markets well before the Reserve Bank acts.

By the time an OCR cut is officially delivered, swap rates may have already adjusted weeks or months earlier.

This is why mortgage rates often move before headlines appear.

Swap Rates vs OCR: Why Mortgage Pricing Moves First

Retail mortgage rates are largely influenced by wholesale swap rates, not directly by the OCR.

Very simply:

• The OCR influences short-term overnight funding.

• Swap rates reflect market expectations of where rates will average over a given term, such as one, two, or three years.

If markets believe the OCR will fall over the next 12 months, the one-year swap rate will often decline in advance. Banks then price fixed-term mortgage rates off those swap rates.

This means:

• A 0.25% OCR cut does not automatically produce a 0.25% mortgage rate reduction.

• Mortgage rates may fall before the OCR moves.

• Mortgage rates may rise even if the OCR is unchanged, if market expectations shift.

For borrowers waiting for a confirmed rate cut before acting, the opportunity may already have passed.

The Risk of Waiting for the “Perfect” Rate

High-income households often have larger loan balances. Small rate differences feel material.

However, waiting introduces several risks:

1. Repricing Risk

If global inflation pressures re-emerge, or if domestic data surprises to the upside, swap rates can rise quickly. Fixed rates may increase even if no OCR hike occurs.

2. Timing Risk

If your fixed term expires into a period of volatility, you may be forced to refix during a short-term spike rather than during stability.

3. Behavioural Risk

Attempting to perfectly time a rate trough often leads to paralysis, followed by reactive decisions when markets shift.

There is rarely a clear signal that “this is the bottom.”

Yield Curve Flattening and What It Signals

In a turning cycle, yield curves often flatten. The gap between short-term and longer-term rates narrows as markets price in future easing.

This creates strategic considerations:

• One-year and two-year rates may sit very close together.

• Longer-term certainty may carry only a small premium.

• Floating rates may not offer the flexibility premium many expect.

When curves flatten, splitting terms becomes particularly relevant.

Split Loan Structures in a Transitioning Cycle

For executives and professionals with strong cash flow, structuring matters more than forecasting.

A split strategy can help manage uncertainty by:

• Fixing part of the loan for stability.

• Keeping part shorter-term to benefit from potential easing.

• Maintaining optionality without full exposure to volatility.

For example:

• 50% fixed two years for cost certainty.

• 30% fixed one year for flexibility.

• 20% floating with offset or revolving credit for liquidity.

This is not about predicting the bottom. It is about spreading risk across time.

In flattening cycles, this approach often produces more stable outcomes than committing entirely to one view.

Break Costs and Refixing Risk

Another overlooked factor is break costs.

If you fix long at a rate that later becomes uncompetitive, exiting early can carry significant cost depending on wholesale rate movements.

Conversely, fixing very short in pursuit of lower future rates can expose you to repricing risk if swap markets reverse.

Understanding:

• The bank’s wholesale funding curve,

• Your loan-to-value ratio,

• And your expected cash flow position

  
  

is essential before committing to a single-term strategy.

What Matters More Than Rate Forecasting

The most successful borrowers we work with do not try to predict every OCR move. Instead, they focus on:

• Cash flow resilience

• Liquidity buffers

• Flexibility in structure

• Long-term wealth strategy

Rates will move. That is inevitable.

What matters is whether your structure remains sound under multiple scenarios.

A Decision Framework for 2026

If you are refixing in 2026, consider:

• What proportion of your income is rate-sensitive?

• How would a 1% increase impact your cash flow?

• How long do you plan to hold this property?

• What is your liquidity position outside the mortgage?

• Are swap markets already pricing in the easing you expect?

The right answer is rarely “wait and hope.”

More often, it is “structure intelligently and move deliberately.”

Final Thoughts

We may be past the peak of the tightening cycle. Inflation is moderating. Market sentiment is improving.

But mortgage pricing does not follow headlines. It follows expectations.

Waiting for the perfect rate assumes we can identify it in real time. History suggests that is unlikely.

A considered structure, built around resilience rather than prediction, is usually the stronger strategy.

If you are approaching a refix and would like to review your structure against current market conditions, we are here to help.