Mortgage Rates to hit 5%: How Much Will Your Mortgage Cost?

With home loan interest rates predicted to hit 5% over the next couple of years, how much is your mortgage going to cost you? Canstar crunches some numbers.

Mortgage rates are already on the up. Back in mid-July, the average mortgage rates for 1- and 2-year fixed mortgages looked like this:

July 2021, average rates:

Term 1-Year 2-Year
Average rate 2.55% 2.86%

Now they look like this:

November 2021, average rates:

Term 1-Year 2-Year
Average rate 3.44% 4.03%

Source: Based on owner occupier loans available for $500,000 and 80% LVR in Canstar’s database. Rates correct as of 05/11/21.

And they’re only going to keep rising. According to the ASB’s most recent Home Loan Rate Report, we can expect mortgage interest rates will “lift to levels around 0.5% to 1.5% higher than they are now over the next few years, with most fixed rates settling in a 4.5-5.5% range”.

While the ASB does hedge its bets by stating that “the outlook is far from certain”, one thing is clear: the days of ultra-low interest rates are over. So how much more will the average mortgagee have to fork out?

Mortgage rate rises: the costs

Before Covid hit, an average 2-year, fixed-term rate for an owner occupier was around 3.5%. However, at the start of this year, you could grab a one-year rate for just over 2%, and a two-year rate of 2.5%.

Working with those figures, most people who fixed in the past 12 months are going to witness their repayments at least double.

According to the latest RBNZ stats on first home buyers, the average FHB mortgage is around $546,000 but, for simplicity’s sake, let’s call it a cool half-million.

So, using Canstar’s Mortgage Calculator, how much extra are mortgage holders going to pay on an average mortgage as rates slowly creep up?

Here’s what each half a percent rate rise will cost on the fortnightly repayments of a 25-year, $500k mortgage.

$500k Mortgage 2.5% 3% 3.5% 4% 4.5% 5%
Fortnightly Repayments $1035 $1094 $1155 $1217 $1282 $1348

As you’ll see from the bolded figures, if, as the ASB predicts, interest rates rise to around 5%, that will cost an extra:

  • $313 per fortnight

  • $8138 per year

And for somebody who recently bought a $1 million home with a 20% deposit, as interest rates rise, their extra repayments will look like this.

$800k Mortgage 2.5% 3% 3.5% 4% 4.5% 5%
Fortnightly Repayments $1656 $1750 $1848 $1948 $2051 $2157

Moving from a rate of 2.5%, that’s an extra:

  • $501 per fortnight

  • $13,026 per year


→ Explore: Check your own repayments with Canstar’s Mortgage Calculator

Mortgage rate rises: the fix

Although rates are rising, there is some good news. The ASB says that it still expects interest rates over the next decade to remain at levels below the long-run averages of the past two decades, and advises that current rates still offer good value. So if your mortgage is up for renewal, locking in a great deal now before rates rise any further could be an attractive option.

And that’s where Canstar can help. If you’re currently considering a home loan, the table below displays some of the 2-year fixed-rate home loans on our database (some may have links to lenders’ websites) that are available for home owners looking to refinance.

The table is sorted by Star Rating (highest to lowest), followed by company name (alphabetical). Products shown are principal and interest home loans available for a loan amount of $500K in Auckland. Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products. Canstar may earn a fee for referrals.

Compare Home Loans

About the author of this page

Bruce PitchersThis report was written by Canstar’s Editor, Bruce Pitchers. Bruce began his career writing about pop culture, and spent a decade in sports journalism. More recently, he’s applied his editing and writing skills to the world of finance and property. Prior to Canstar, he worked as a freelancer, including for The Australian Financial Review, the NZ Financial Markets Authority, and for real estate companies on both sides of the Tasman.

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