Fixed vs Floating Mortgage

🏠 Two Ways to Set Your Rate

When you take a mortgage in New Zealand, you choose how the interest rate is set: fixed for a period, or floating, which moves with the market. Most people use a mix. Understanding the trade-off, certainty versus flexibility, helps you structure your loan to suit your budget and plans rather than guessing.

                Key Point: A fixed rate locks your interest rate, and so your repayments, for a set term, giving certainty but limiting extra repayments and charging a break fee if you exit early. A floating rate moves up and down with the market, so repayments can change, but you can make extra repayments freely and pay off the loan without a break fee. Many borrowers split their loan across both, and across different fixed terms, to balance certainty and flexibility.
            

The Core Difference

Feature	Fixed	Floating
Rate	Locked for the term	Moves with the market
Repayment certainty	High	Lower, can change
Extra repayments	Limited, may trigger a break fee	Usually unlimited and free
Exiting early	Break fee may apply	No break fee

It Is a Trade-off, Not a Right Answer

Fixed gives budgeting certainty; floating gives flexibility. Neither is always better, and which suits you depends on your need for predictable payments versus the freedom to repay faster or change.

⚖️ Pros and Cons of Each

Fixed Rate

Pros: Certain repayments, protection if rates rise during the term, easier budgeting.
Cons: Limited extra repayments, a break fee if you exit or overpay too much, and you miss out if rates fall.

Floating Rate

Pros: Repay extra any time with no penalty, no break fee, benefit immediately if rates fall.
Cons: Repayments can rise if rates go up, usually a higher rate than fixed, less budgeting certainty.

                Floating is the flexible one: If you expect to make lump-sum repayments, sell, or restructure soon, floating avoids break fees. If you want certainty and to set and forget your budget, fixed is appealing. Many people want some of both.
            

Rates Move With the OCR

Both fixed and floating rates are shaped by the Official Cash Rate and bank funding costs. See our How the OCR Affects You guide for how that flows through, and remember no one reliably predicts rates.

🔀 Splitting and Choosing

Splitting Your Loan

You do not have to choose only one. Many borrowers split the loan, keeping a portion floating for flexibility and fixing the rest, sometimes across different fixed terms so they do not all come up for renewal at once.

Fix a large portion for repayment certainty

Keep a floating portion for extra repayments and flexibility

Stagger fixed terms so not all renew together

This blends certainty with the freedom to pay down faster

How to Choose

Value certainty? Fix more of the loan.
Planning lump sums or a sale? Keep more floating to avoid break fees.
Tight budget? Fixing protects you from a sudden rise during the term.

Use our Mortgage Calculator and Mortgage Interest Rate Comparison Calculator to test how different rates and structures change repayments.

Refixing

When a fixed term ends, you refix at whatever rates apply then, or move to floating. Plan for the fact that your rate, and repayment, can be quite different at refix time.

💡 Common Mistakes

Mistake 1: Fixing Everything, Then Wanting to Repay Early

If you fix the whole loan and then come into money or sell, a break fee can apply. A floating portion gives room to overpay.

Mistake 2: Trying to Time the Market

No one reliably predicts rates. Base your choice on your budget and plans, not a forecast.

Mistake 3: All Fixed Terms Ending Together

If your whole loan refixes at once, a rate rise hits everything at the same time. Staggering terms softens that.

Mistake 4: Ignoring Refix Risk

A low fixed rate ends. Build a buffer so a higher rate at refix does not break your budget.

A Simple Approach

1. Decide how much certainty you need

2. Fix a portion for stable repayments

3. Keep some floating if you plan to overpay or sell

4. Stagger fixed terms so they do not all renew at once

5. Build a buffer for higher rates at refix

See our Mortgage Mastery guide for more. Final word: fixed gives certainty and floating gives flexibility, and most borrowers blend the two by splitting the loan and staggering terms. Choose based on your budget and plans rather than predicting rates, and prepare for refix. This is general information, not advice; talk to a mortgage adviser for your situation.

🎯 Test Your Knowledge

Quiz on Fixed vs Floating (20 Questions)

1. A fixed rate:

Locks your rate and repayments for a term

Changes every day

Has no set period

Is always cheapest

2. A floating rate:

Moves up and down with the market

Is locked for years

Never changes

Has a break fee always

3. Fixed offers mainly:

Repayment certainty

Unlimited free overpayments

No interest

Instant benefit from rate falls

4. Floating offers mainly:

Flexibility to repay extra without penalty

Fixed repayments

Protection from all rate rises

A guaranteed low rate

5. Exiting a fixed rate early can trigger:

A break fee

A bonus

A lower rate

Nothing

6. On a floating loan, exiting early:

Has no break fee

Always costs more

Is not allowed

Doubles your rate

7. Many borrowers:

Split their loan across fixed and floating

Only ever float

Only ever fix everything

Avoid mortgages entirely

8. Staggering fixed terms means:

Not all of the loan refixes at once

The rate never changes

You pay no interest

The loan is interest-only

9. Both rate types are shaped by:

The OCR and bank funding costs

Only your credit card

The weather

Nothing

10. If you plan lump-sum repayments soon, consider:

Keeping more floating to avoid break fees

Fixing everything

Never repaying

Closing the loan

11. If you want set-and-forget budgeting:

Fixing is appealing

Floating is the only option

You should avoid a mortgage

Rates do not matter

12. Trying to time the rate market is:

Unreliable; base it on budget and plans

Easy and certain

Guaranteed to work

Required

13. When a fixed term ends you:

Refix at current rates or move to floating

Keep the old rate forever

Pay off the loan automatically

Lose the loan

14. Fixing the whole loan then wanting to repay early can:

Trigger a break fee

Save the most money always

Have no cost

Lower your rate

15. If your whole loan refixes at once and rates rose:

The increase hits everything at the same time

Nothing changes

You pay less

The bank pays you

16. A floating rate is usually:

Higher than the fixed rate

Always the lowest rate

Zero

Fixed for five years

17. A buffer at refix helps because:

A higher rate may apply when you refix

Rates never change

It lowers your loan

It is required by law

18. On a fixed rate, if market rates fall, you:

Miss out until your term ends

Benefit immediately

Get a refund

Pay nothing

19. Neither fixed nor floating is:

Always better; it depends on your situation

Ever useful

Allowed in NZ

The same as the other

20. The overall message is:

Blend fixed and floating to your budget and plans, and prepare for refix

Always fix everything

Always float everything

Predict rates precisely

If you've found a bug, or would like to contact us, or learn more about James Graham and Calculate.co.nz.

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