Fixed vs Floating Mortgage Rates: How to Choose the Right One for You

One of the most common questions people ask when getting a mortgage, or when their fixed rate is coming up for renewal, is whether to fix their rate or leave it floating. It's not a one-size-fits-all answer, and the wrong call can cost you more than you'd expect. Here's a clear breakdown to help you decide.

What's the Difference Between Fixed and Floating?

A fixed rate means your interest rate stays the same for a set period, usually between six months and five years. You know exactly what your repayments will be, which makes budgeting simple and predictable.

A floating rate (also called a variable rate) moves with the market. When the Reserve Bank of New Zealand (RBNZ) cuts the Official Cash Rate (OCR), your rate typically drops. But it can also rise. As of mid-2026, the RBNZ has been cutting the OCR from its 2023 peak of 5.50%, with most economists expecting rates to continue easing, though timing and pace remain uncertain.

Practical tip: Check when your current fixed rate expires. Even if it's months away, it's worth starting the conversation now. Good preparation takes the pressure off.

What Are the Pros of Fixing Your Rate?

Certainty. When you fix, you lock in your repayment amount for the term, so you can budget with confidence. Fixed rates are also generally lower than floating rates, especially on shorter one- to two-year terms.

The trade-off is flexibility. If you want to make large lump-sum repayments, or you need to sell or refinance during your fixed term, you may face early repayment costs (often called break fees). These can be substantial, sometimes tens of thousands of dollars depending on your loan size and the rate difference.

Practical tip: Before fixing, ask your lender exactly how they calculate break fees. Understanding the formula before you commit could save you a nasty surprise later.

What Are the Pros of Going Floating?

Flexibility is the main one. A floating rate lets you repay as much as you want, whenever you want, without penalty. If you're expecting a windfall, such as a bonus, an inheritance, or proceeds from selling another property, floating lets you pay down your mortgage faster without any extra cost.

The downside is uncertainty. If rates rise, so do your repayments, and those changes can happen quickly.

Practical tip: If you're on a floating rate, set a buffer in your budget for rate rises. Even a 0.5% increase on a $500,000 loan adds roughly $150 per month to your repayments.

Should You Split Your Mortgage?

Many Kiwis split their mortgage, and it's often the smartest move. Splitting means fixing part of your loan for certainty and leaving part floating for flexibility. For example, on a $500,000 loan, you might fix $400,000 for two years and leave $100,000 floating.

This gives you predictable repayments on most of your debt, while still being able to chip away at the floating portion with extra payments whenever you can.

Practical tip: A split doesn't have to be 80/20. Your adviser can model different splits based on your income, savings, and plans.

How Do You Choose the Right Fixed Term?

Shorter fixed terms (six months to two years) make sense when rates are falling. You can re-fix sooner at a potentially lower rate. Longer terms (three to five years) suit people who value certainty, aren't planning to sell, and want protection against unexpected rate rises.

In the current rate-cutting environment, many advisers lean toward shorter terms or a split strategy, but your personal situation always matters more than the prevailing market trend.

Practical tip: Don't just pick the lowest rate on offer. Think about what life might look like in one, two, or three years. Changes in income, family size, or property plans all affect the right term for you.

What About Revolving Credit and Offset Mortgages?

These are floating-rate products that use your savings to reduce the interest you're charged. An offset mortgage offsets your savings balance against your loan, so you only pay interest on the difference. A revolving credit facility works like a large overdraft. Funds flow in and out, and you pay interest only on the daily balance.

Both can meaningfully reduce total interest paid over time, but they require financial discipline to use well.

Practical tip: Revolving credit works best for people with steady income and strong spending habits. If you tend to spend what's available, a standard floating account with automatic payments may suit you better.

Talk to Mortgage Mates Before You Decide

The right structure really does depend on your situation: your income, your plans, how much flexibility you need, and where rates are heading. At Mortgage Mates, we look at the whole picture and give you honest, personalised advice, not a generic rate from a comparison table.

If your fixed rate is coming up for renewal, or you're buying a home and trying to figure out how to structure your loan, reach out for a chat. No obligation, no jargon, just straightforward guidance from people who genuinely care about getting it right for you.

Key Takeaways

• Fixed rates offer certainty; floating rates offer flexibility. Most borrowers benefit from a mix of both.
• Splitting your mortgage across fixed and floating is a popular and practical approach in NZ.
• With the OCR on a downward path in 2026, shorter fixed terms are worth considering, but always structure around your life, not just the market.
• Break fees on fixed rates can run into thousands of dollars. Always understand the cost before committing to a term.
• An adviser can model the options for your specific situation. Mortgage Mates includes this in every mortgage consultation.

FAQ

Is it better to fix or float my mortgage right now in NZ?

It depends on your situation and how long you plan to stay in your property. With the OCR still on a downward path, shorter fixed terms of one to two years are popular right now, but the best answer is always built around your specific circumstances, not a market headline.

What is a break fee on a fixed rate mortgage?

A break fee is the charge your lender applies if you exit a fixed rate early, to sell, refinance, or restructure. It's calculated based on the interest the bank would lose, and can range from a few hundred to many thousands of dollars depending on your loan and how much rates have moved.

Can I fix part of my mortgage and leave part floating?

Yes. This is called a split mortgage, and it's very common in NZ. It gives you certainty on the fixed portion and flexibility to make extra repayments on the floating portion without penalty.

What is a revolving credit mortgage?

A revolving credit facility is a floating-rate mortgage that works like an overdraft. Your income flows in and reduces the balance; withdrawals increase it. You pay interest only on the daily balance, which can reduce total interest significantly if you manage your money actively.

How often should I review my mortgage structure?

At least once a year, and definitely when your fixed rate comes up for renewal. Things change: your income, your plans, and market conditions all shift. Mortgage Mates offers annual reviews to make sure your loan is still structured in a way that works for your life.

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