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Fixed vs Floating Mortgage Rates: Which Should You Choose?
When you take out a home loan in New Zealand, one of the first decisions you'll make is how to structure your interest rate. You can fix your rate for a set term, leave it floating, or split it between both. Each approach has real advantages and real drawbacks — and the right choice depends on your personal situation as much as market conditions.
How Fixed Rates Work
A fixed interest rate locks you in at a specific rate for a defined period — typically 6 months, 1 year, 2 years, or occasionally up to 5 years. During that term, your rate doesn't change regardless of what happens to the OCR or the broader market. This gives you certainty: your repayments are predictable, and you can budget with confidence.
The trade-off is flexibility. If you want to make large extra repayments, refinance to another bank, or sell your property during a fixed term, you'll usually face a break fee (also called an early repayment charge). Break fees can be substantial — sometimes thousands of dollars — because the bank is compensating for the interest they'll no longer receive.
In 2026, fixed rates on popular 1–2 year terms are sitting in the mid-to-high 5% range for most main banks, with some competitive offers slightly below 5.5% for customers with strong equity positions. The gap between short-term and long-term fixed rates has narrowed as the market stabilises.
How Floating Rates Work
A floating (or variable) rate moves with market conditions — primarily the OCR set by the Reserve Bank of New Zealand. When the OCR drops, floating rates typically drop. When the OCR rises, so do floating rates. In 2026, with the OCR around 2.25%, floating rates at most banks are sitting around 6.5%–7%.
The key advantage of floating is flexibility. You can make unlimited extra repayments, pay off chunks of your loan early, or switch to a fixed rate at any time — all without break fees. This makes floating particularly useful if you're expecting a large windfall (inheritance, bonus, asset sale) or if you're planning to sell or refinance in the near term.
Pros and Cons at a Glance
Fixed Rate Pros:
- Certainty — you know exactly what you're paying
- Protection if rates rise
- Currently lower than floating rates
Fixed Rate Cons:
- Break fees if your circumstances change
- You miss out if rates fall significantly
- Limited flexibility for extra repayments (typically $500/week or similar caps)
Floating Rate Pros:
- Full flexibility for repayments
- No break fees
- Benefits if rates fall further
Floating Rate Cons:
- Currently more expensive than fixed
- Repayments can rise if rates increase
- Harder to budget precisely
The Split Strategy
Many New Zealand borrowers choose to split their mortgage between fixed and floating — and for good reason. A common approach might be to fix 70–80% of the loan for certainty on the bulk of repayments, while keeping 20–30% floating for flexibility to make extra payments.
For example, on a $600,000 mortgage, you might fix $450,000 for 2 years at 5.6% and keep $150,000 floating at 6.8%. This way, you have predictable repayments on the larger portion, but you can aggressively pay down the floating portion if you have spare cash.
Spreading Fixed Terms
Another strategy is to fix portions of your loan across different terms — for instance, splitting a $700,000 mortgage into three tranches: $230,000 fixed for 1 year, $230,000 fixed for 2 years, and $240,000 fixed for 3 years. This gives you exposure to different rate environments as each tranche rolls off, reducing the risk of refixing your entire loan at a peak.
What Makes Sense in 2026?
With the OCR having dropped significantly from its 2023–2024 highs and now sitting around 2.25%, the rate cutting cycle appears to have largely run its course. Most economists expect rates to remain relatively stable through 2026, with possible small movements in either direction depending on inflation and global conditions.
In this environment, shorter-to-medium fixed terms (1–2 years) are popular because they offer lower rates than floating without locking you in for too long. If rates do move — either up or down — you're not too far from being able to refix at a better rate.
That said, the right answer depends on your situation: How stable is your income? Are you planning to sell or renovate? Do you have savings you might want to put toward the mortgage? These factors matter more than trying to predict the market.
Choosing between fixed and floating isn't a one-size-fits-all decision — it depends on your goals, your cash flow, and your appetite for certainty versus flexibility. The advisers at Kiwi Mortgages can help you model the options and find a structure that actually fits your life. Book a free consultation at kiwimortgages.co.nz.
