Fixed vs Floating Rate in NZ: How to Choose
Published
Written by Adelaide Levy · Relationship Manager — Mortgages, Orange Network
Reviewed by Chad Weber · Head of Lending
Choose a fixed rate when you need your repayments to stay the same for a set period and you do not expect to repay large lump sums. Choose floating when you expect money to come in — a bonus, a sale, an inheritance, or irregular self-employed income — and you want the freedom to repay or restructure without break costs. Many NZ borrowers do both: most of the loan fixed for certainty, a smaller portion floating or in an offset or revolving facility for flexibility. The right split depends on what the next two years look like for you, not on a prediction of where rates are going.
What fixed gives you, and what it takes away
A fixed rate locks your interest rate and repayment for the term you choose — commonly six months to five years. You know exactly what leaves the account, whatever the Reserve Bank does. The trade-off is rigidity. Repaying extra beyond a lender's allowance, selling the property, or leaving the loan early inside a fixed term can trigger a break cost, which can be small or painfully large depending on how far market rates have moved since you fixed.
What floating gives you, and what it costs
A floating (variable) rate moves with the market, so your repayment can rise or fall. In return you can repay any amount at any time, redraw on some facilities, link the loan to an offset account, or leave without a break cost. Floating rates usually sit above the sharper fixed rates, so floating a whole loan for a long period is usually expensive flexibility you never use. Floating earns its place on the portion of the loan you genuinely expect to clear or move.
The options in the middle
- Split fixed and floating: certainty on the bulk, freedom on the part you plan to repay
- Split across two fixed terms: half the loan re-fixes in one year, half in two, so the whole loan never reprices on one bad week
- Offset: your savings and everyday balances sit against the floating loan and reduce the interest charged, while the money stays yours
- Revolving credit: works like a large secured overdraft — powerful for disciplined budgets, unforgiving for everyone else
A practical way to decide
Ask three questions. Will lump sums arrive in the next year or two? If yes, keep roughly that amount unfixed. How much would a repayment rise hurt? If a 1% rise would strain the household budget, fix more of the loan for longer. Is a sale, refinance, or renovation likely inside the term? If yes, avoid locking the whole loan into a term you will pay to exit. Nobody — not a broker, not a bank economist — can reliably tell you whether rates will be higher or lower in a year. Structure the loan so you are not ruined if the guess is wrong either way.
Your fixed term end date is the moment this decision gets made again. Start that review about 90 days out. Orange Network compares 16+ lenders and the structures each will offer. This is general information, not personalised financial advice. FSP665511.
