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.
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.
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.
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
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)
Frequently Asked Questions
What is the difference between a fixed and floating mortgage rate?
A fixed rate is locked for a set term, giving certain repayments; a floating rate can change at any time but is more flexible, allowing extra repayments without break fees.
Is a fixed or floating rate cheaper?
Fixed rates are usually lower than floating, but floating offers flexibility. Many people split their loan across both to balance certainty with flexibility.
Can I make extra repayments on a fixed mortgage?
Usually only up to a yearly limit, often around 5%, before a break fee may apply. Floating and revolving credit portions allow unlimited extra repayments.
What happens at the end of a fixed term?
You choose a new rate (refix) or move to another lender (refinance). If you do nothing, the loan usually rolls onto the higher floating rate.
Related guides
- Bonds and Fixed Income, a related guide in the same area.
- Breaking a Fixed Mortgage Guide, a related guide in the same area.
- Periodic vs Fixed-Term Tenancies, a related guide in the same area.