Disclaimer:
The information on this website is for general guidance only and does not constitute financial advice. Interest rate forecasting is inherently uncertain. Seek personalised advice from a qualified mortgage adviser.
Key Takeaways
- Fixing is about payment certainty more than rate prediction.
- Floating offers flexibility and benefits immediately from rate cuts.
- Assess your ability to handle higher repayments if rates rise.
- Splitting fixed and floating can balance certainty and flexibility.
- Choose term lengths based on your risk tolerance and plans.
Whether to fix your mortgage rate depends on your personal circumstances more than on predicting rate movements. Fix if you value payment certainty, cannot afford payment increases, or are risk-averse about rates rising. Stay floating if you expect rates to fall, want flexibility to make large repayments, or are comfortable with payment variability.
The fixed versus floating question prompts more anxiety than it deserves. Countless hours are spent trying to predict rate movements that nobody can forecast reliably. The truth is that either choice works out reasonably well over time. The right answer depends less on where rates are heading and more on what suits your financial situation and temperament.
What Fixed Rates Give You
A fixed rate locks your interest rate for a specified term, typically one to five years. Your payments remain constant regardless of market rate movements during that period. This certainty is the primary advantage of fixing.
Payment Certainty
Knowing exactly what your mortgage payment will be simplifies budgeting. You can plan other financial commitments with confidence that housing costs will not unexpectedly increase. For households with tight budgets or fixed incomes, this certainty provides genuine peace of mind.
Protection from Rate Increases
If rates rise during your fixed term, you continue paying the lower rate you locked in. This protection is valuable when rates are rising or expected to rise. The longer the fixed term, the longer this protection lasts.
The Trade-Off:
Fixed rates typically include a premium over floating rates. You pay slightly more for the certainty. You also give up flexibility to make significant additional repayments without penalty in most cases. If rates fall, you continue paying your higher fixed rate.
What Floating Rates Give You
Floating rates move with the market. When the Reserve Bank adjusts the Official Cash Rate, floating mortgage rates typically follow. This means your payments can increase or decrease throughout your loan term.
Flexibility
Floating rates allow unlimited additional repayments without penalty. If you receive a bonus, inheritance, or other lump sum, you can pay it directly into your mortgage. This flexibility suits borrowers with variable income or those planning to accelerate repayments.
Benefit from Rate Decreases
When rates fall, floating borrowers benefit immediately. There is no waiting for a fixed term to expire. In declining rate environments, floating can deliver significant savings compared to locked-in fixed rates.
The Trade-Off:
Floating rates expose you to payment increases if rates rise. Budgeting is more challenging when payments can change. The uncertainty can be stressful, particularly for households without significant financial buffer.
Questions to Help You Decide
Rather than trying to predict rate movements, focus on your own situation. These questions help clarify which approach suits you better.
Could You Handle Higher Payments?
If floating rates rose by 2%, could you comfortably afford the increased payments? If the answer is no, or only with significant sacrifice, fixing provides valuable protection. If you have ample buffer to absorb increases, floating's flexibility might suit you better.
Do You Plan Large Repayments?
Expecting a bonus, selling an asset, or otherwise planning to make significant lump sum repayments? Floating allows this without penalty. Fixed rates typically limit extra repayments or charge fees for exceeding thresholds.
Might You Sell or Refinance?
If you might sell your property or want to refinance within the fixed term, breaking fees apply. These can be substantial when rates have fallen since you fixed. Floating rates avoid this lock-in entirely.
How Important Is Certainty?
Some people sleep better knowing exactly what their payments will be. Others are comfortable with variability. Neither preference is wrong. Be honest about your temperament and choose accordingly.
You Do Not Have to Choose One:
Many borrowers split their mortgage between fixed and floating portions. This hedges against being completely wrong about rate direction and provides some of each approach's benefits. For a detailed discussion of splitting strategies, see our article on structuring your mortgage.
Choosing a Fixed Term
If you decide to fix, the next question is for how long. New Zealand lenders offer terms from six months to five years, with one, two, and three-year terms most common.
Need personalised guidance?
Chat with a Homeowners Club affiliated mortgage adviser, conveyancer, insurance adviser, or builder — no obligation.
Have a question about this?
Post it in the Homeowners Club forum — get answers from the community and industry professionals.
Shorter Terms (One Year or Less)
Shorter terms typically offer lower rates but require more frequent decisions as each term expires. They suit borrowers who expect rates to fall or want to maintain flexibility. The downside is more exposure to rate increases over time.
Longer Terms (Three to Five Years)
Longer terms provide extended certainty but typically at higher rates. They suit borrowers seeking maximum stability or who believe rates will rise significantly. The trade-off is potentially paying more than necessary if rates fall or stay flat.
Medium Terms (Two Years)
Two-year terms often represent a middle ground. They provide reasonable certainty without committing too long in an uncertain environment. In practice, two-year terms are among the most popular choices in New Zealand.
Laddering Strategy:
Rather than fixing everything for one term, consider spreading portions across different terms. For example, one third on one-year, one third on two-year, and one third on three-year. This diversification means some portion is always coming up for review at current rates.
What About Rate Predictions?
You will encounter plenty of commentary about where rates are heading. Economists make forecasts. Banks publish outlooks. Media reports speculation. None of this should heavily influence your personal decision.
Rate predictions are frequently wrong. Even expert forecasters have poor track records over anything beyond a few months. Making personal financial decisions based on predictions introduces unnecessary risk.
A better approach is to choose a structure you can live with across a range of scenarios. If you fix and rates fall, you will feel some regret but you will have the certainty you chose. If you float and rates rise, your payments increase but you retain flexibility. Neither outcome is disastrous if you chose based on your genuine preferences and circumstances.
Reviewing Regularly
Whatever you choose now is not permanent. Fixed terms expire and require new decisions. Floating borrowers can fix at any time. The key is not to make the perfect choice once, but to review periodically and adjust as your circumstances change.
Major life events often warrant mortgage structure review. Job changes, income increases or decreases, family changes, and property transactions all affect what structure makes sense. When rates seem to be moving significantly, it is also worth reviewing your position.
Staying engaged with your mortgage structure rather than setting and forgetting ensures you continue to make appropriate choices as both market conditions and your personal situation evolve.
Frequently Asked Questions
Related Articles
Fixed vs Floating: How to Structure Your Mortgage in 2026
Learn how to structure your mortgage with fixed and floating rates. Understand split mortgages, revolving credit, and how to build a loan st
What to Do When Interest Rates Change: Strategies for Homeowners
Learn how to respond when mortgage interest rates rise or fall. Practical strategies for NZ homeowners to manage payments, adjust budgets, a