We expect short-term mortgage rates to remain biased lower over the months ahead.

Despite Reserve Bank governor Alan Bollard warning that the OCR would remain at or below current levels until late 2010, wholesale markets continue to price in rising interest rates.  This tension, and intertwined with high deposit rates, could take some time to resolve and is expected to keep the yield curve steepening.

In this environment we favour being patient, taking advantage of low six month and 1 year fixed rates. Our view Mortgage rates have been stable over the past month, having already risen during the month of March.

As we highlighted previously, that rise occurred following a widespread rush to fix by homeowners, which placed upward pressure on wholesale rates, which in turn placed further pressure on mortgage rates, and so on.

Together with rising deposit rates, there has been limited scope for actual borrowing rates to fall. While that upward spiral has now run its course, wholesale markets remain deeply divided over prospects for the economy, and have sided with a view that is at odds with RBNZ Governor Bollard's.

Indeed, the governor has committed to keep the OCR at or below its current level until late next year, citing weak economic prospects. By contrast, the market is pricing in rising interest rates from early next year, based on the view that the economy will recover quickly.

We believe the Reserve Bank will ultimately be correct, and their view resonates with our own view, but this could take some time to be reflected in interest rates.

The complicating factor at present is not merely wholesale interest rates but deposit rates as well. Indeed, while the RBNZ can control the cash rate, which is a major determinant of six month and one year rates, its actions have less of an impact on 2-5 year fixed rates, which tend to be heavily influenced by global concerns and also aggressive competition for deposits. We can't see this pressure subsiding anytime soon.

One stand-out feature of the current set of mortgage rates is the degree to which longer term fixed rates exceed their shorter term counterparts.

With depositors and investors naturally demanding a higher return to compensate for uncertainty and tying their money up for longer, so too the reciprocal pressure emerges on borrowing rates.

We can't see this changing and we need to accept that we are returning is a more conventional and traditional "steep yield curve" environment, and it is in sharp contrast to the situation prevailing in the years immediately prior to the credit crunch. More importantly, it means that when it does come time to fix, it will cost more.

Many borrowers will value certainty - but this shouldn't be done blindly. Instead, we suggest clients analyse their choices in deeper detail with the view to arriving at a more analytical conclusion.

One way to do this is with breakeven analysis.

In a credit constrained environment, the premium the market now demands for certainty has risen sharply. It is therefore unlikely that we will see long term rates at a discount to short-term rates.

Given this (certainty at a cost), and our view of the future (lower mortgage rates in the short part of the curve), we favour taking advantage of lower short-term fixed rates, rather than paying what looks like an excessive premium for certainty.

Rolling a series of six month fixed rates over the next few years is certainly worth considering, as opposed to fixing. Of course, if certainty is what you're after - then price may not come into it.

This is part of ANZ's monthly Property Focus publication. To read the full report, including an analysis of break fee costs, click here.