Fixed vs floating: how to choose your mortgage rate
Locking in a fixed rate feels safer, but floating has real advantages too. Here's how to decide which one fits your situation.
By the KiwiSums team
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Published 12 July 2026
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Updated 19 July 2026
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7 min read
The basic difference
A floating (variable) rate can change at any time — usually in step with the Reserve Bank's OCR decisions. A fixed rate locks your interest rate for a set term, typically 6 months to 5 years, no matter what happens to interest rates during that time.
Neither is inherently better — they're different tools for different priorities. The right choice usually comes down to how much you value certainty versus flexibility, and what you expect interest rates to do next.
Why floating can win
Floating gives you full flexibility — make extra repayments or a lump-sum payoff anytime without break fees, and you benefit immediately if rates fall. The trade-off is that your repayment can rise without warning, which makes budgeting harder, and floating rates in NZ are usually priced higher than short-term fixed rates as the cost of that flexibility.
"Floating is the price of optionality — you're paying a premium for the freedom to change your mind."
Why fixed can win
Fixed gives you certainty — your repayment stays exactly the same for the whole term, which makes budgeting simple and protects you if rates rise while you're locked in. The trade-off is a break fee if you need to exit early, missing out if rates fall, and facing whatever rates are on offer when your term ends — sometimes called the "refix cliff".
| What matters | Floating | Fixed (1-year) |
|---|---|---|
| Rate certainty | Can change anytime | Locked for the term |
| Extra repayments | Unlimited, no fees | Often capped or fee-based |
| Break fees | None | Can apply if you exit early |
| Typical rate (2026) | ~6.50% | ~5.45% |
| Best for | Selling soon, expecting cuts, want flexibility | Budgeting certainty, protecting against rises |
Typical rates are illustrative averages for 2026 — always check current advertised rates with your bank, as they move regularly.
Splitting your mortgage: the middle path
Many New Zealand borrowers don't pick just one — they split their mortgage into portions, some fixed and some floating. A common approach is fixing the bulk of the loan (say 70-80%) for certainty, while keeping a smaller floating portion free for extra repayments or flexibility.
How term length changes the trade-off
Shorter fixed terms (6 months to 1 year) behave more like floating — you reprice more often, which suits you if you expect rates to fall soon or plan to sell or refix in the near future. Longer fixed terms (3-5 years) give the most certainty, but usually carry a premium for that certainty and leave the biggest gap if rates fall significantly during your term.
If you think there are more OCR moves on the way, it's worth reading what the latest OCR rate hike means before choosing a term — the direction the Reserve Bank is heading is one of the biggest clues for which term length makes sense.
Lean towards fixed — probably a 1-2 year term unless you're confident rates are heading down soon. It'll keep your repayment predictable and protect you from further hikes like the one covered in our OCR explainer.
What you can do now
- Model both scenarios. Compare fixed and floating repayments side by side in the mortgage payment calculator before deciding.
- Ask about splitting. Most banks let you split your mortgage into fixed and floating portions — ask what proportions make sense for you.
- Watch the OCR. The Reserve Bank's rate decisions are the biggest driver of where mortgage rates head next — see what the latest OCR move means.
- Compare before you refix. Don't just accept your bank's rollover rate — use the refix / refinance calculator to check your options first.
Written by the KiwiSums team
We build plain-English calculators for New Zealand money decisions. This explainer is general information, not financial advice — figures are illustrative and simplified for clarity. Talk to your bank or a licensed adviser about your own situation.
Assumptions & sources
Retail bank advertised floating and fixed carded rates.
12 July 2026
19 July 2026
Typical rates shown are illustrative averages across major banks, not a specific offer. Break fee mechanics vary by bank and loan structure — always request a specific break cost estimate from your lender before deciding.
Frequently asked questions
Neither is universally better — it depends on your priorities. Fixed suits people who value budgeting certainty or expect rates to rise; floating suits people who want flexibility to make lump-sum repayments or think rates might fall.
Yes — most NZ banks let you split your mortgage into multiple portions, each with its own rate and term. It's a common way to get some certainty while keeping flexibility on part of your loan.
Your bank will usually charge a break fee, calculated from the difference between your fixed rate and current wholesale rates for the remaining term. It can be substantial if rates have fallen a lot since you fixed — ask your bank for a break cost estimate before deciding.
