Fixed vs Floating: What Should You Choose When Refixing Your Home Loan?

With interest rates shifting and the Reserve Bank adjusting the OCR, understanding the trade-offs between fixed and floating is critical. There’s no one-size-fits-all answer — the right structure depends on your risk tolerance, income stability, and short-term plans.

What is a Fixed vs Floating Mortgage?

A fixed-rate mortgage locks in your interest rate for a set term (usually 1–5 years in New Zealand). During that term, your repayments stay the same, regardless of whether market interest rates rise or fall.

A floating-rate mortgage (also called variable rate) moves with market conditions and the Official Cash Rate (OCR). Your repayments can go up or down depending on interest rate changes.

Many New Zealand homeowners split their mortgage between fixed and floating to gain both stability and flexibility — locking in part for certainty, while keeping part open for early repayments or rate changes.

Fixed-Rate Mortgage: Pros and Cons

Pros:

• Certainty: Your repayments stay the same for the fixed term, making budgeting easy.

• Protection: If market rates rise, you’re protected from increases during your term.

• Good for budgeting: Especially helpful if your income is steady or cash flow is tight.
  Cons:

• Less flexibility: Limited ability to make extra repayments or restructure.

• Break fees: Leaving or refinancing early can trigger significant penalties.

• Missed opportunities: If rates drop, you’re locked in at a higher rate until your term ends.

Read our guide on when and why you should refix.

Floating-Rate Mortgage: Pros and Cons

Pros:

• Flexibility: You can make lump-sum payments, increase repayments, or refinance anytime without penalty.

• Opportunity: If rates drop, your repayments reduce automatically.

• Good for short-term borrowers: Ideal if you plan to sell, refinance, or restructure soon.
  Cons:

• Uncertainty: Your repayments can rise if rates increase.

• Higher starting rate: Floating rates are often higher than comparable fixed rates.

• Less predictability: Harder to budget long-term, especially if your income fluctuates.

When Each Makes Sense

Choose fixed if:

• You value repayment certainty and stability.

• You expect interest rates to rise.

• You have a long-term plan and don’t anticipate major financial changes soon.
  Choose floating if:

• You’re planning to sell, refinance, or restructure soon.

• You want flexibility to make extra repayments or pay off the loan faster.

• You believe interest rates may fall and want to benefit when they do.

Split option: Many borrowers choose to split their mortgage — for example, 70% fixed, 30% floating. This allows you to lock in most of your loan for certainty, while keeping flexibility on a portion for repayments or refinancing.

Real-World Examples

Example 1:
A homeowner with a NZ$500,000 mortgage on a floating rate of 5.95% decides to fix for three years at 4.95%. This gives them immediate repayment certainty and protection against potential rate rises, but they’ll miss out on any rate drops during that term.

Example 2:
A borrower nearing the end of a fixed term, expecting a large bonus in six months, may stay on floating. This lets them make lump-sum repayments without penalty before locking in when rates stabilise.

Example 3:
An investor planning to sell within a year might stay floating entirely to avoid break fees if they sell early.

Lender Advice and Tips

• Know your risk tolerance: If rising repayments would cause stress, lean fixed.

• Check your term length: Short fixes (1–2 years) allow flexibility if rates change, while longer fixes (4–5 years) offer stability but may cost more over time.

• Review loan features: Fixed loans often restrict extra repayments; floating allows more freedom.

• Ask about break costs: Always understand what happens if you refinance or sell mid-term.

• Consider splitting: If you’re unsure, a mix of fixed and floating can provide balance.

• Review regularly: Revisit your mortgage at each expiry — market conditions and your situation change fast.

• Use a broker: A mortgage adviser can model multiple scenarios to show real cost outcomes based on rate movements.

FAQs

Can I switch from fixed to floating mid-term?
Yes, but you may pay break costs if you’re on a fixed rate.
What if interest rates fall after I fix?
You won’t benefit until your term ends, unless you pay a break fee to switch.
What if I want to make large extra repayments?
Floating loans (or the floating portion of a split loan) are best for that flexibility.

Call to Action

If your home loan is due for refix, don’t just roll over blindly. The difference between fixed, floating, or a smart split can mean thousands saved — or lost — over your term.

Talk to one of our mortgage specialists today to compare structures, calculate break costs, and find the right mix for your goals.