If you’re buying your first home, refixing your mortgage, or thinking about refinancing, one of the biggest decisions you’ll face is whether to choose a fixed or floating interest rate.
It’s a question we get asked almost every day. And the honest answer is that there’s no single right choice. The best option depends on your financial situation, your plans for the next few years, and how comfortable you are with a bit of uncertainty.
In this guide, we’ll walk you through how each rate type works, what they’ll cost you in real terms, and when one might suit you better than the other. We’ll also cover a strategy most experienced borrowers use that gives you a bit of both worlds.
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What Is a Fixed Interest Rate?
A fixed interest rate stays the same for a set period, usually anywhere from six months to five years. During that time, your repayments don’t change, no matter what happens with the Official Cash Rate (OCR) or the broader economy.
For example, if you lock in a one-year fixed rate today at around 6% (depending on your bank and how much equity you have), you’ll pay that same rate every fortnight or month for the next 12 months.
At the end of your fixed term, you’ll need to choose again. You can refix for another term, switch to floating, or restructure your loan entirely. This is a great time to talk to a mortgage broker because banks don’t always offer their best rates automatically at rollover.
What fixed rates are good for
Certainty. You know exactly what your repayments will be, which makes budgeting straightforward. If you’re a first home buyer stretching to make your repayments work, or you’re on a tight household budget, that predictability can take a lot of stress out of the equation.
Fixed rates also tend to be lower than floating rates at any given point in time. Right now, the gap is meaningful. The average two-year fixed rate sits around 4.54%, while the average floating rate is around 5.53%. On a $500,000 mortgage, that difference adds up to roughly $3,500 a year in extra interest if you’re on floating. The RBNZ has the data on average interest rates.
What Is a Floating Interest Rate?
A floating (or variable) rate moves up and down in response to market conditions. When the Reserve Bank adjusts the OCR, banks typically pass those changes through to floating rates fairly quickly.
The big advantage of floating is flexibility. You can make extra repayments, pay lump sums, or pay off your loan entirely at any time without facing break fees. That freedom is worth real money if your circumstances are likely to change.
When floating really shines
Let’s say you’re planning to sell your property in the next six to twelve months. If you were on a two-year fixed rate, selling the house before that term ends would trigger a break fee (more on that below). On floating, you can settle the loan on sale day with no penalty.
Floating is also useful if you’re expecting a large cash injection, such as an inheritance, a bonus, or the sale of another asset, and you want to throw that money straight onto the mortgage.
Fixed vs Floating at a Glance
Here’s a side-by-side comparison of the two rate types. Rates are approximate, as at March 2026.
| Feature | Fixed Rate | Floating Rate |
|---|---|---|
| Interest rate | Locked in for 6 months to 5 years | Changes with the market |
| Current average rate | ~4.44% (1-year fixed) | ~5.53% |
| Repayment certainty | High — repayments stay the same during fixed term | Low — repayments can go up or down |
| Extra repayments | Limited (most banks allow up to 5% extra per year) | Unlimited — pay as much as you want, anytime |
| Break fees | Yes — can be significant if rates have dropped | None |
| Best for | Budgeting certainty, first home buyers, long-term holds | Flexibility, short-term holds, lump sum repayments |
The Strategy Most Kiwis Use: Splitting Your Mortgage
Here’s what a lot of people don’t realise: you don’t have to choose one or the other. Most experienced borrowers (and most mortgage brokers) will recommend splitting your loan across multiple rate types and terms.
How it works in practice
Let’s say Sam and Priya have just bought their first home in Auckland for $820,000 with a $500,000 mortgage. Their broker suggests splitting the mortgage into three portions within a single loan facility at one bank:
$250,000 on a one-year fixed rate at 4.49%: this is their largest chunk, giving them certainty on the bulk of their repayments for the next 12 months.
$200,000 on a two-year fixed rate at 4.69%: this portion is locked in slightly longer, spreading the risk in case one-year rates rise when the first portion comes up for renewal.
$50,000 on a revolving credit facility (floating): Sam gets quarterly bonuses at work. By putting those bonuses into the revolving credit account, the couple reduces the interest charged on that $50,000 portion without paying any break fees.
All of this sits under one mortgage with one bank. Most major NZ lenders let you split your home loan this way. ANZ and KiwiBank both offer combining loan types. Your broker can help you work out which bank’s products best suit how you want to structure things.
What are Home Loan Break Fees?
Break fees are the cost you’ll pay if you end a fixed rate term early. This might happen if you sell your house, refinance to another bank, or want to restructure your loan before the fixed period is up.
The size of the fee depends on how much your loan balance is, how far you are into the fixed term, and how much wholesale interest rates have moved since you locked in. In a falling rate environment, break fees can be substantial. On a $600,000 mortgage with several years left on the fixed term, fees of $10,000 to $30,000 or more are not unusual.
There are usually no break fees on floating rate loans. This is one of the key reasons brokers recommend keeping at least a portion of your mortgage on floating or in a revolving credit or offset facility.
Most banks do allow you to make some additional repayments on a fixed loan without triggering a fee. BNZ, for example, allows up to 5% of your loan balance per year in extra payments on their standard fixed rate home loans. Other banks have similar allowances, though the terms vary, so it’s worth checking with your lender or broker, and reading the fine print of your mortgage contract carefully.
For more information, read the Banking Ombudsman’s guide to early repayment charges.
Where Are Interest Rates Heading in 2026?
Interest rates have come down significantly since their peak in 2023. The Reserve Bank cut the OCR multiple times through 2025, bringing it down to 2.25% by late November 2025. That’s flowed through to mortgage rates, with one-year fixed rates now sitting in the low-to-mid 4% range across most banks.
The question now is whether rates will keep falling, hold steady, or start creeping back up. As at early 2026, most bank economists are signalling that the OCR has likely reached its low point for this cycle. Several banks, including ANZ and BNZ, have indicated they expect fixed mortgage rates to begin rising gradually from mid-2026 as wholesale funding costs increase. You can check the OCR at RBNZ.
What does this mean for your decision? If economists are right, locking in a one or two-year fixed rate now could protect you from modest rate rises over the next 12 to 24 months. But nobody has a crystal ball, and rate predictions have been wrong before. The safest approach is to structure your mortgage so you’re not overexposed to any single rate or term.
Fixed vs Floating Rates – Which One Should You Choose?
As mentioned above, there’s no right or wrong, and what works for one person, may not be suitable for another. Here are some common scenarios to consider:
You’re a first home buyer
Fixed rates give you certainty during the most financially stretched period of your life. You’ll know exactly what your repayments are, which helps when you’re adjusting to homeownership costs like rates, insurance, and maintenance. A one or two-year fixed rate on the bulk of your loan, with a small revolving credit portion for flexibility, is a solid starting point.
You’re an investor
Property investors often have different priorities. You might want interest-only lending, the ability to restructure quickly if you buy or sell, or the flexibility to move money between properties.
While splitting your mortgage across portions at one bank works well for most owner-occupiers, property investors often take a different approach. As your portfolio grows, it can make sense to spread your lending across two or more banks rather than holding everything with a single lender.
This reduces your exposure if one bank tightens its lending criteria or changes its appetite for investment lending, and it gives you more flexibility when you’re ready to purchase your next property. Your broker can help you map out which lenders to use and how to structure each loan for the best result across your whole portfolio.
You’re planning to sell within a year
If there’s any chance you’ll sell your property in the near future, think carefully before fixing. The break fee risk may outweigh the interest savings. Going floating, or fixing for a very short term like six months, keeps your options open.
You’ve come into a lump sum
If you’ve received an inheritance, redundancy payout, or sold an asset and want to put that money towards your mortgage, floating gives you the freedom to do that without penalties. Alternatively, talk to your broker about restructuring your fixed portions to take advantage of the extra payment allowances most banks offer.
Frequently Asked Questions
What happens when my fixed rate expires?
Your bank will usually roll you onto their floating rate unless you choose to refix before the expiry date. This is why it’s worth setting a reminder a few weeks before your fixed term ends, as you’ll want to compare rates and potentially negotiate a better deal.
Can I switch from fixed to floating mid-term?
Yes, but you’ll likely face a break fee. The fee depends on how much your loan is, how long you have left on your fixed term, and what’s happened to wholesale rates since you locked in. Your bank or broker can give you a quote for what the fee would be.
Do I pay more interest on a floating rate?
Generally, yes. Floating rates are almost always higher than fixed rates at the same point in time. As at early March 2026, the gap between the average floating rate and the average one-year fixed rate is around 1%. On a typical mortgage, that adds up to thousands of dollars a year in extra interest.
How a Mortgage Broker Can Help
A good mortgage broker does more than just find you a rate. They’ll look at your full financial picture, your income, your goals, your tolerance for risk, and help you build a mortgage structure that works for where you are right now and where you’re heading.
At OneStop Financial Solutions, we work with lenders across the market, including the major banks and non-bank lenders, to find the right fit. Whether you’re a first home buyer trying to figure out your deposit, an investor looking to grow your portfolio, or a homeowner wondering whether now’s the right time to refix, we’re here to help.
We’re based in Highland Park, Auckland, and we work with clients right across New Zealand. You can get in touch by completing the form on this page or give us a call to chat through your options. There’s no cost for a conversation, and we’ll always give you straight advice.
