One of the first decisions every NZ mortgage holder faces is whether to go fixed, floating, or split. Get it right and you save thousands. Get it wrong and you could be locked into a rate that hurts — or face a large break fee to get out.
This guide explains how fixed and floating rates actually work, what the trade-offs are, and how to choose the right structure for your situation in 2026.
The Core Difference
| Feature | Fixed rate | Floating rate |
|---|---|---|
| Interest rate | Locked for the chosen term | Moves with the market |
| Repayment amount | Stays the same during fixed term | Changes when rate changes |
| Certainty | High | Low |
| Flexibility | Low (break fees if you exit early) | High (repay or switch any time) |
| Typical rate | Lower than floating (most of the time) | Higher than short-term fixed |
| Best for | Budget certainty; rate stability | Large lump-sum repayments; rate flexibility |
In New Zealand, the vast majority of mortgage lending is fixed. Most borrowers fix for 1–3 years and roll over repeatedly over the life of their loan.
How Fixed Rate Mortgages Work
Choosing a fixed term
NZ banks typically offer fixed terms of:
- 6 months
- 1 year
- 18 months (less common)
- 2 years
- 3 years
- 4 years
- 5 years
The rate you get is based on the bank’s cost of funding for that term (linked to wholesale swap rates) plus a margin. Longer terms aren’t always more expensive — the shape of the yield curve determines which terms are cheapest at any given moment.
What happens at the end of a fixed term
When your fixed term expires, your loan rolls over. If you take no action, the bank will automatically move you to either:
- A new fixed term at the bank’s current carded rate (whatever term their system defaults to), or
- The standard floating rate
Neither of these is likely to be the best deal available. Rollover is the single most important moment to act — compare rates, negotiate, or refinance.
Set a reminder 30–45 days before your fixed term expires. That’s when you have the most leverage: the break fee is near zero, but you haven’t yet rolled over to a default rate.
Break fees
If you need to exit a fixed rate mortgage before the term ends — because you’re selling, refinancing, or making a large lump-sum repayment — the bank may charge a break fee (also called an early repayment cost or ERC).
How break fees are calculated:
Banks calculate break fees based on the difference between your fixed rate and the wholesale market rate for the remaining term. If rates have fallen since you fixed, the bank loses income by letting you exit — and passes that cost to you.
Example:
- You fixed at 6.5% for 2 years
- 12 months later, the equivalent swap rate is 5.5%
- You have 12 months remaining on the term
- Your loan balance is $600,000
The bank’s loss: 1.0% × $600,000 × (12/12) = ~$6,000 break fee
If rates have risen since you fixed (meaning current rates are above your fixed rate), the break fee is typically zero — the bank doesn’t lose money by letting you go.
Key point: Break fees are unpredictable until calculated at the time. Always get a break fee estimate from your bank before making a decision about early exit. For more on the full application process, see our getting a mortgage guide.
How Floating Rate Mortgages Work
A floating (variable) rate moves with market conditions — primarily the RBNZ Official Cash Rate (OCR) and banks’ internal funding costs. When the OCR falls, floating rates typically fall within 1–2 weeks of the RBNZ announcement. When the OCR rises, they follow quickly.
Advantages of floating
- No break fees: You can repay any amount at any time without penalty
- Full flexibility: Switch to fixed at any time, sell without penalty, or make a large lump-sum payment
- Automatic rate benefit: If the OCR falls sharply, your rate follows without needing to wait for a fixed term to expire
Disadvantages of floating
- Higher rate: NZ floating rates are typically 1%–2% above the best short-term fixed rates
- Repayment uncertainty: Your repayments can increase if rates rise
- Temptation to delay fixing: Borrowers waiting for rates to fall further sometimes miss the bottom and end up worse off
When floating makes sense
- You’re planning to make a large lump-sum repayment (inheritance, bonus, asset sale) within the next 6–12 months
- You’re about to sell the property
- You’re expecting a very large rate fall and want to capture it without a rollover event
- You use a revolving credit facility (which is floating by nature)
Split Loans: The Most Common NZ Structure
A split mortgage divides your home loan into two or more portions — each with its own rate type and term. This is the most common structure among NZ mortgage holders.
Example split structure on a $700,000 mortgage:
| Split | Amount | Type | Rationale |
|---|---|---|---|
| Portion A | $450,000 | Fixed 2 years at 5.45% | Core debt, budget certainty |
| Portion B | $200,000 | Fixed 1 year at 5.59% | Staggered rollover — different expiry date |
| Portion C | $50,000 | Floating | Extra repayments without break fees |
Benefits of a split structure:
- Staggered rollovers: If Portion A and B expire at different times, you’re never fully exposed to the market rate at one moment
- Rate diversification: You benefit if rates fall on shorter terms without being fully committed to short-term risk
- Flexibility on a portion: The floating split allows extra repayments and provides a buffer if you need to draw funds
How many splits should I have?
Most borrowers use 2–3 splits. More than that adds complexity without much additional benefit. Speak to a broker about the optimal structure for your loan size and personal situation.
Revolving Credit: A Third Option
A revolving credit (offset) mortgage is floating by nature but functions differently from a standard floating loan. Instead of a fixed repayment schedule, your salary is deposited directly into the facility and you draw spending money as needed.
Interest is calculated daily on the outstanding balance — so every dollar sitting in the account reduces your interest for that day. A borrower who keeps $20,000 of cash flow in their revolving credit facility for most of the year effectively reduces their interest-bearing balance by $20,000.
Best for: Financially disciplined borrowers with variable income, or those who receive a salary and can deploy cash strategically.
Risk: Without discipline, the principal never reduces. The revolving credit balance can remain flat (or grow) if you withdraw as much as you deposit.
Most NZ borrowers using revolving credit treat it as a small portion of the loan (e.g., $50,000–$100,000) alongside fixed portions on the bulk of the debt.
Fixed vs Floating: Decision Framework
Use this framework to choose your structure:
Step 1: Consider your cash flow needs
- Do you expect to make large lump-sum repayments in the next 1–2 years? → Keep a floating portion
- Do you need payment certainty to budget reliably? → Fix the majority
Step 2: Assess your rate view
- Do you expect rates to fall significantly? → Shorter fixed terms or floating gives faster benefit
- Do you think rates are near a bottom? → Longer fixed terms lock in a favourable rate before they rise
- Uncertain? → Split across 1-year and 2-year fixed (the most common NZ approach)
Step 3: Consider your timeline
- Selling within 2–3 years? → Avoid long fixed terms (break fees can be costly); use 1-year fixed or floating
- Staying long-term? → Fixed rates provide stability; longer terms may suit if the rate is attractive
Step 4: Check the rate differential
Calculate the actual cost of the different options:
| Scenario | 1-year fix at 5.59% | 2-year fix at 5.45% |
|---|---|---|
| Cost difference | Higher rate now | Lower rate — save ~$840/year on $600k |
| Rollover risk | Can fix again at year 1 (whatever rate) | Locked until year 2 |
| Break fee risk | Lower (shorter remaining term) | Higher |
If the 2-year rate is materially lower than the 1-year rate, fixing for 2 years hedges against rates rising at the 1-year rollover.
Rate Comparison: Fixed vs Floating NZ (April 2026)
| Term | Indicative rate | Best for |
|---|---|---|
| 6 months fixed | ~6.10%–6.20% | Short-term certainty; expecting big rate cuts |
| 1 year fixed | ~5.55%–5.60% | Most flexible short-term fix; most popular |
| 2 years fixed | ~5.39%–5.45% | Good rate, moderate commitment |
| 3 years fixed | ~5.49%–5.55% | Certainty across a rate cycle |
| 5 years fixed | ~5.85%–5.90% | Long-term certainty; protection against rises |
| Floating | ~6.99%–7.09% | Flexibility only; rarely cheapest option |
Always check current rates directly with lenders or a broker — rates change frequently. See our NZ mortgage rates guide for the latest comparisons.
What If I’m in a Fixed Term and Rates Have Fallen?
This is one of the most common dilemmas for NZ mortgage holders. If rates have dropped significantly since you fixed, you have three options:
Option 1: Wait until your fixed term expires
No break fee. The cleanest option if the remaining term is short (6 months or less).
Option 2: Pay the break fee and refix at the lower rate
Calculate whether the interest saving over the remaining term exceeds the break fee. If you save $200/month and the break fee is $3,000, you break even in 15 months. If your fixed term has 20+ months remaining, it may be worth it.
Option 3: Negotiate with your bank
Some banks will “blend and extend” — adjust your rate part-way through a fixed term in exchange for extending the term. This avoids a formal break fee but requires care — the blended rate is rarely the best available.
Get a break fee quote from your bank and model the numbers before deciding. A mortgage broker can help with this calculation.
Frequently Asked Questions
Is it better to fix or float in New Zealand right now? In early 2026, with the OCR in a cutting cycle, most NZ mortgage commentary favoured shorter fixed terms (1–2 years) over longer fixes — on the basis that rates might fall further at rollover. Floating rates remained significantly above short-term fixed rates, making floating unattractive for most borrowers except those needing flexibility for lump-sum repayments.
Can I switch from fixed to floating before my term ends? Yes, but you may incur a break fee. If current rates are higher than your fixed rate, the break fee is typically zero. If rates have fallen, the bank will charge you for the loss of income.
How do I know if I’m getting a good mortgage rate? Compare your rate against current carded rates from at least two other major banks. If your rate is more than 0.20% above the best available equivalent rate, it’s worth negotiating — especially at rollover. A mortgage broker can assess your position quickly.
What is a “rate lock”? A rate lock allows you to secure an interest rate for a set period (typically 30–60 days) before your mortgage settles. This protects you from rate rises between pre-approval and settlement. Not all lenders offer rate locks; ask early in the process.
Can I have different fixed terms for different portions of my loan? Yes — this is the standard NZ split structure. For example, $400,000 fixed for 2 years and $300,000 fixed for 1 year. The portions have different rollover dates and rates, giving you diversified exposure.
What happens if I can’t afford my floating rate repayments? Contact your bank immediately. Most lenders have hardship policies — they can adjust repayments, grant a repayment holiday, or restructure the loan. If you have a floating portion specifically because rates might fall, this is also the time to fix the portion to lock in a predictable repayment.
What to Read Next
- NZ Mortgage Rates 2026 — current rates from all major banks
- Fixed Rate Mortgage Guide NZ — how fixed rates work in depth
- Getting a Mortgage in NZ — the full application process
- NZ Mortgages Complete Guide — everything in one place
- How Home Loans Work in NZ — repayment and amortisation explained
- Refinancing Your Mortgage NZ — when to switch lenders
- Mortgage Pre-Approval NZ Guide — getting conditional approval