First it was ANZ's 'secret' rate of 5.65 percent.

Then TSB said it was offering an advertised rate of 5.99 percent for a year.

On Reserve Bank data, the special rates offered by the banks have dropped sharply from a peak of more than 7 percent for two years last November to 5.8 percent in September - and further since.

Broker Glen McLeod, of Edge Mortgages, said he felt a "war" was likely as banks competed for the leading home loan rates.

"Fingers crossed it's a really exciting war and people are going to benefit from it."

David Cunningham, chief executive at Squirrel, said he expected three-year rates could be below 5 percent before Christmas.

His colleague, founder John Bolton, said compared to wholesale rates, retail rates were still at historic highs.

"When competition heats up, and margins pull back to 1.80 percent, advertised one-year fixed home loan rates should fall from around 6.29 percent-where they are today-to around 5.79 percent.

"Banks are willing to negotiate on one-year fixed rates, but I believe this shouldn't happen 'under the table'. It should be advertised rates and available to everyone.

"If one of our banks takes the initiative, we could see a three-year fixed mortgage of 4.95 percent before Christmas-hopefully not just below the counter. In my mind, a mortgage rate with a four in front feels like a great deal."

Infometrics chief forecaster Gareth Kiernan said it was interesting to see mortgage rates between two and five years had all settled at about 5.69 percent.

"It suggests that markets are picking rates around there to be close to the bottom of the cycle. Shorter term rates, up to about two years, are likely to go below that level as the easing cycle continues but there's a sense that current levels represent medium-term average rates over the course of the economic cycle."

He said it was interesting that, in wholesale markets, swap rates were behaving differently to government bonds.

Usually, swaps would be higher than government bonds, but the reverse is true at the moment.

"The most credible explanation for this divergence is that there is a lack of demand for swaps at the moment due to weak lending volumes," Kiernan said.

"Government bond rates have been fairly steady over the last few months, so unless we expect bond rates to fall further, the most likely resolution of the current situation is that swap rates will have to increase to restore the relativity to something more normal.

"Although that shift could still be some months away, because it would probably need to tie in with some pick-up in demand in the housing market, it does suggest that swap rates are unusually low and therefore, by extension, mortgage rates might also be a bit more favourable for borrowers than would appear at first glance.

"Because of the unusual behaviour of swap rates at the moment, our modelling has the one-year rate bottoming out at about 5.6 percent next year. However, one-year and two-year rates could get down to about 5 percent if swap rates continue to track below bond rates."

But as home loan interest rates fall, so too do the rates offered to people with money to put in the bank.

When ASB announced rate cuts this week, it said term deposit rates were dropping between 5 and 20 basis points each.

Westpac said a number of ts savings interest rates were dropping by 50 basis points.

this story was written by Susan Edmunds, Money Correspondent and originally posted on RNZ News