When you're setting up or refixing a mortgage in New Zealand, one of the first questions you'll face is: fixed or floating?
There's no universally right answer — it depends on your situation, your tolerance for payment uncertainty, and what you think interest rates will do. Here's a clear breakdown.
What Is a Fixed Rate?
A fixed rate locks in your interest rate for a set period — typically 6 months to 5 years. During that term, your repayments stay the same regardless of what happens in the market.
Pros of fixing:
- Payment certainty — you know exactly what you'll pay each fortnight or month
- Protection against rate rises
- Easier to budget
Cons of fixing:
- You miss out if rates fall
- Break fees can be significant if you need to repay early (e.g. if you sell)
- Less flexibility for extra repayments (some lenders allow up to 5–20% per year)
What Is a Floating Rate?
A floating (or variable) rate moves with the Official Cash Rate (OCR) set by the Reserve Bank of New Zealand. When the OCR goes up, your rate goes up. When it drops, your rate drops.
Pros of floating:
- Full flexibility — repay as much as you want, whenever you want
- Rate drops benefit you immediately
- No break fees
Cons of floating:
- Payment uncertainty — a rate rise means higher repayments
- Floating rates are typically higher than short-term fixed rates
- Harder to budget long-term
The Split Strategy: Best of Both Worlds?
Many New Zealand borrowers split their mortgage — fixing a portion (say 70–80%) to get certainty, while keeping the rest floating for flexibility. This approach lets you:
- Make extra lump-sum payments on the floating portion
- Protect most of your repayments from rate rises
- Refix in stages, so you're not rolling your entire mortgage at one rate cycle
What Should You Do Right Now?
Interest rate decisions depend on the current OCR cycle, your break-even analysis, and your personal circumstances. There's no one-size-fits-all answer.
What a good mortgage adviser does is model out the different scenarios for your specific loan amount, term, and situation — then help you make an informed decision, not just a guess.
Talk to Nexa today — we'll walk through the numbers with you.
Key Questions to Ask Yourself
- How long are you planning to stay in the property? Short-term holders are more exposed to break fees.
- Can your budget handle a payment increase if rates rise? If not, fixing provides peace of mind.
- Do you have a lump sum or extra income you want to put into the mortgage? A floating component gives you that flexibility.
- What is the rate outlook? This matters — though no one can predict rates with certainty.
A split structure is often the right starting point. Your adviser can help you work out the right proportions for your situation.