Understanding your rate options
When you take out a mortgage in New Zealand, one of the most important decisions is whether to choose a fixed rate, a floating rate, or a combination of both. Each has distinct advantages, and the best choice depends on your financial goals, risk tolerance, and the current interest rate environment.
Fixed rate mortgages
A fixed rate mortgage locks your interest rate for a set period — typically 6 months to 5 years in New Zealand. During this time, your repayments stay the same regardless of what happens to market interest rates.
Pros of fixed rates
- Certainty — you know exactly what you'll pay each fortnight or month
- Protection — if interest rates rise, your rate stays the same
- Budgeting — easier to plan household finances
Cons of fixed rates
- Break fees — if you want to repay early or refinance, you may face significant break costs
- Limited extra repayments — most fixed loans cap lump sum payments at $5,000–$10,000 per year
- Missed savings — if rates drop, you're stuck at your locked-in rate until the term ends
Floating rate mortgages
A floating (or variable) rate moves up and down with the market. NZ banks adjust floating rates in response to the Reserve Bank's Official Cash Rate (OCR) and other factors.
Pros of floating rates
- Flexibility — make unlimited extra repayments with no penalties
- Benefit from drops — when rates fall, your repayments decrease
- No break fees — refinance or switch lenders any time
Cons of floating rates
- Higher rates — floating rates are usually 0.5%–2.0% above the best fixed rates
- Uncertainty — your repayments can increase when rates rise
The split loan strategy
Many savvy Kiwi borrowers split their mortgage — for example, fixing 60–70% for rate certainty and floating 30–40% for flexibility. This lets you make extra payments on the floating portion while enjoying locked-in rates on the bulk of the loan.
What suits you best?
| Choose Fixed If… | Choose Floating If… |
|---|---|
| You want certainty and stable repayments | You expect rates to fall soon |
| You're on a tight budget | You want to make extra repayments freely |
| You plan to keep the loan for the full term | You may sell or refinance in the near future |
Use the mortgage calculator to model different rate scenarios and see how your repayments change.
Frequently asked questions
What is the difference between fixed and floating mortgage rates?
A fixed rate locks your interest rate for a set term (typically 1–5 years), protecting you from future rate rises. A floating rate changes with the market (usually monthly), and can go up or down with the OCR. Each suits different borrower situations.
Can I switch from fixed to floating before my term ends?
Technically yes, but you'll typically face a break fee from your lender. The fee depends on how much the market rate has moved since your loan began. Learn how break fees are calculated and when refinancing might still make financial sense.
What happens when my fixed rate expires?
When your fixed term ends, your lender will offer you a new rate—often worse than your expiring rate. You don't have to accept it; you can refinance to a competing lender. Start shopping 4–6 weeks before your fixed term expires to negotiate the best rate.
Is a split loan strategy (part fixed, part floating) a good idea?
A split loan allows you to hedge your risk: lock in rates on 50–70% of your balance, and keep 20–40% floating to benefit from rate drops. This strategy suits borrowers wanting flexibility without abandoning rate certainty. It increases complexity and fees, so weigh the costs carefully.
How do I know if I should choose fixed or floating rates?
Choose fixed if you want payment certainty and are budget-conscious; choose floating if you can absorb rate rises and expect rates to fall soon. Use our calculator to model both scenarios with current rates.
Compare mortgage rates across all NZ lenders
See how fixed and floating rates compare side by side — updated daily from every major bank and non-bank lender.