SBS Bank's boss says a rock bottom 3.99 per cent mortgage rate will be profitable and is not just a marketing stunt.

The minnow lender launched the special one year fixed rate on Monday, which it said would run for a limited time.

The sub-4 per cent home loan rate is the lowest New Zealand has seen in several decades and could stir larger rivals into cutting their own prices.

The Southland-based SBS timed the promotion to coincide with a "refresh" of its branding and services, as it aims to strengthen its presence in Auckland and nationwide.

Chief executive Wayne Evans said it would make money on the deal, but its ownership structure meant short-term profitability was not as pressing.

"Because our members are our shareholders ... we don't have to make a lot of profit out of them.

"We can actually leave the money in their pockets if they're borrowers, or put more money there if they're investors."

Evans expected the offer to bring strong growth to the bank's balance sheet, and did not believe larger rivals would match it.

With a mobile banking app coming soon and other products in development, he said the small bank was able to hold its own.

"This is not the end of it. The competition probably won't like hearing that."

Like most bank 'specials', the offer has several strings attached.

It only applies to residential owner-occupied properties, requires new lending of at least $100,000, 20 per cent equity, and signing up for one other SBS product.

READ MORE:

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* Mortgage rate price war set to continue

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Smaller locally-owned banks such as SBS frequently lead the mortgage rate market, despite being minnows in market share.

SBS has 16 branches and 490 staff nationwide, with a credit rating of BBB from ratings agency Fitch.

Massey University banking expert David Tripe said it was unclear whether 3.99 per cent was the lowest rate in New Zealand history.

"We don't have particularly good records prior to the mid-50s," he said. "It would look like a good rate."

With banks tending to move in packs, Tripe said rival lenders would probably respond with their own offers.

Kiwibank spokesman Bruce Thompson said the state-owned bank ran promotions from time to time, but it was "SBS' day".

"We haven't got any response to their promotion, other than 'good luck'," he said.

ANZ, ASB and Westpac all said they constantly reviewed their home loan rates, but did not reveal any immediate moves.

Go2Guys mortgage broker Campbell Hastie said other banks might well follow suit, but only for as long as the special was available.

"I don't think it's going to become entrenched."

Hastie said he suspected home loan rates had now hit the bottom and would not fall further.

The market was probably already pricing in assumptions that the Reserve Bank would cut official interest rates next month, he said.

Hastie said some mortgage holders were asking whether it was worth paying fees to break their fixed term contracts and switch to a juicier rate.

"When we do the number-crunching, what I've found is that if it is worthwhile doing, it's only marginally so."

However, he said lower mortgage payments could be helpful from a cashflow perspective.

Hastie warned that break fees quoted by banks could change on an almost daily basis, due to the fast-moving interest rate environment.

LOWEST BANK RATES:

Floating: 5.60 per cent - ICBC

One year: 3.99 per cent - SBS and HBS

Two years: 4.25 per cent - HSBC

Three years: 4.49 per cent - ASB

Four years: 4.99 per cent - ASB, HSBC, The Co-operative Bank

Five years: 4.99 per cent- HSBC, The Co-operative Bank

Source: Good Returns