Fixed or Floating Mortgage NZ: How to Choose When Your Term Ends

For Most New Zealand Borrowers, Refixing Is the Lowest-Cost Default. The Real Decision Is the Term and Structure.

Every month, we watch borrowers spend the fortnight before their refix date reading rate forecasts and trying to guess where the Reserve Bank will take the Official Cash Rate (OCR). That attention is almost always misdirected. While they are watching the OCR, they overlook the structural decisions that actually save money: checking whether their equity qualifies them for a lower rate tier, considering a split across multiple terms, or using the repayment allowances already available on their existing fixed loan.

Two terms come up throughout this article and are worth distinguishing early. Refixing means locking in a new fixed rate with your existing bank when your current term expires. Refinancing means moving your mortgage to a different lender entirely, which involves a new application, legal costs, and a full credit assessment. This article focuses primarily on the refix decision, though refinancing at refix time is covered in the FAQs.

The vast majority of NZ mortgage lending by value sits on fixed rates, and fixed rates have historically been cheaper than floating across multiple rate cycles. This decision also matters more in New Zealand than in most other countries. Australian and American borrowers typically choose once between a variable rate and a 25- or 30-year fix. New Zealand borrowers refix every one to three years, which means every cycle brings fresh repricing risk and a fresh set of decisions. Over a 25-year mortgage, a borrower rolling one-year terms faces this decision roughly 25 times. Getting the framework right is worth more than getting any single rate call right.

One thing to act on now: if you take no action when your fixed term expires, most banks will automatically roll your loan onto their floating rate. The floating rate is almost always 1.5 to 2.5 percentage points higher than the short-term fixed rate you just left. On a $500,000 mortgage, the difference can exceed $8,000 a year in additional interest. Set a calendar reminder for two to four weeks before your fixed term ends.

How Fixed Rates Work in New Zealand

Fixing your mortgage rate locks in both the interest rate and your repayment amount for a set term. NZ banks typically offer fixed terms of six months, one year, 18 months, two years, three years, and five years. The core benefit is budget certainty: for the duration of the term, your repayments are immune to OCR movements or anything else happening in the broader economy.

Fixed rates also tend to be lower than floating rates. Banking researcher David Tripe at Massey University analysed more than 15 years of NZ mortgage rate data and found the one-year fixed rate averaged approximately 5.38%, while the floating rate averaged around 6.17%. The gap fluctuates, but the general pattern has held across multiple rate cycles: borrowers typically pay a premium for floating rate flexibility.

Special Versus Standard Rates

Most NZ banks offer two tiers of fixed rates. "Special" rates, usually 0.30 to 0.70 percentage points lower than standard rates, are available to borrowers with at least 20% equity. In practical terms, 20% equity means your loan balance is no more than 80% of your property's current market value. If you are near this threshold, check your current loan-to-value ratio before refixing. The difference compounds meaningfully over a full term, and banks do not always apply the special rate automatically.

Early Exit: Break Fees and Repayment Limits

Fixed rate loans limit how much you can repay ahead of schedule. Most NZ banks allow extra repayments of around 5% of the original fixed loan amount per year without penalty, though the exact allowance varies by lender.

Beyond that threshold, you face break fees. Under the Credit Contracts and Consumer Finance Act 2003, early repayment fees must not exceed a reasonable estimate of the lender's loss. In practice, if wholesale rates have risen since you fixed, the bank suffers no loss and the break fee can be zero. Break fees are only significant when wholesale rates have fallen since you locked in. Your bank must provide a break fee estimate on request, so it is always worth asking before assuming you are locked in.

Floating Rates: The Flexibility Premium

A floating rate moves in response to market conditions, influenced by both the OCR and individual bank repricing decisions. When the OCR falls, floating rates tend to follow, though with a lag and at the bank's discretion. The main advantage is freedom: you can make unlimited extra repayments at any time without penalty. For borrowers who receive irregular income, annual bonuses, or commission payments, this flexibility can accelerate debt reduction significantly. If you are planning to sell within the next year or two, floating also avoids the risk of incurring break fees on a fixed term you would need to exit early.

The price is higher interest. Across NZ banks, the gap between floating and one-year fixed rates has typically sat in the range of 1.5 to 2.0 percentage points.

Revolving Credit: The NZ Flexible Mortgage

The most common flexible mortgage product in New Zealand is a revolving credit facility, sometimes called a "flexi" loan. It functions like a large overdraft secured against your property: your salary is deposited directly against the loan balance, reducing the principal you pay interest on for as long as the funds sit there. When you withdraw money for expenses, the balance rises again. Revolving credit facilities typically charge the bank's floating rate.

This is distinct from a true offset account, where a linked savings account reduces the balance on which interest is calculated without the funds literally sitting inside the mortgage. True offset accounts are less common in New Zealand. If you are exploring this option, confirm exactly which structure your bank offers.

What the Numbers Look Like

Floating costs roughly 30% more in annual interest than a short-term fix on the same loan balance. To illustrate, consider a $500,000 mortgage at indicative rates. The figures below show approximate annual interest cost on the initial balance only, excluding principal repayments. Rates shift regularly; check interest.co.nz or your bank for current figures.

• Floating at around 6.60%: roughly $33,000 per year in interest
• One-year fixed at around 5.00%: roughly $25,000 per year in interest
• Three-year fixed at around 5.50%: roughly $27,500 per year in interest

The exact rates will differ when you read this, but the relativities between terms tend to hold: floating carries a premium, and longer fixed terms cost more than shorter ones.

Choosing Your Fixed Term: What the Yield Curve Tells You

For most NZ borrowers, the real question is "which fixed term?" The answer involves both market signals and personal circumstances.

Banks price different fixed terms using wholesale swap rates, which reflect the market's collective expectation of where interest rates are heading. When one-year fixed rates are lower than three-year or five-year rates (a normal yield curve), the market expects rates to stay roughly where they are or rise. When the curve flattens or inverts, it signals expectations of rates falling. The yield curve will not tell you what rates will do, but it does tell you what is already priced into your bank's offer, and what you are implicitly betting on when you choose a term. If the curve is flat, the premium for locking in a longer term is small, which also means the cost of choosing the "wrong" term is small.

The Historical Pattern

In the same Massey University analysis covering more than 15 years of NZ mortgage data, David Tripe found rolling one-year fixed terms has consistently been the cheapest borrowing option. This helps explain why one-year terms have historically priced cheapest: shorter terms carry less uncertainty for the bank, so the risk premium baked into the rate is smaller. The trade-off is a refix decision every 12 months and the possibility rates may be higher at each renewal. Structural changes to the NZ lending environment, including debt-to-income restrictions and evolving bank funding rules, may alter this pattern in future cycles.

When Shorter Terms Make Sense

Shorter fixed terms (six months to one year) tend to suit borrowers who want the optionality to benefit if rates decline, prefer to reassess their position regularly, or anticipate a life change within the next couple of years: selling a property, making a large repayment, or refinancing to another lender.

When Longer Terms Make Sense

Longer terms (two to five years) suit borrowers who value budget certainty above all else, believe current rates are attractive relative to the likely direction of travel, or want to set and forget for a while. Locking in a longer rate also removes the risk of refixing at a higher rate if the cycle turns.

A borrower with stable employment and strong savings can tolerate the variability of rolling short-term fixes. A borrower on a tight budget with a young family may sleep better with a longer lock. The right answer depends on how much rate risk your household can absorb, which brings us to the split approach.

As Nik Velkovski, Private Wealth and Lending Manager at Become Wealth, puts it:

"The clients who get the best long-term outcomes are the ones who set their mortgage up around their own cash flow and life plans, then stop worrying about rate calls. Nobody consistently picks the bottom of the rate cycle. The goal is a structure that keeps working regardless of what rates do next."

Splitting Your Mortgage: Managing Regret, Not Forecasting Rates

Splitting your mortgage across multiple fixed terms, or a combination of fixed and floating, is one of the more underused tools available to NZ borrowers. The case for splitting is behavioural: it smooths cash-flow shocks at refix time and spreads your exposure across multiple terms so no single rate movement hits the full loan balance at once.

Consider a homeowner with a $600,000 mortgage:

1. $360,000 (60%) on a two-year fixed rate for core budget certainty on the bulk of the loan
2. $120,000 (20%) on a one-year fixed rate to reassess sooner and capture any rate drops
3. $120,000 (20%) in a revolving credit facility for flexible access, allowing extra repayments from bonuses or irregular income

The annual cost difference between a split and a single fixed term is typically in the range of $1,000 to $2,000 on a mid-sized mortgage. The borrower pays that modest premium but gains the flexibility to make unlimited repayments on $120,000 of the debt and to reassess another $120,000 in 12 months. For many households, the certainty of never being fully wrong is worth more than the chance of being perfectly right.

The Drawbacks of Splitting

Splitting adds complexity. You are managing multiple loan tranches with different maturity dates, different rates, and different refix decisions. If you forget to refix any portion when it matures, it rolls onto the bank's default floating rate and the cost advantage evaporates.

Splitting also reduces your ability to switch banks entirely or negotiate cash-back offers. If $360,000 of your loan is locked into a two-year fixed term, you cannot leave without paying break fees. Banks know this, and it weakens your negotiating position. For disciplined borrowers who track maturity dates, splitting works well. For those who prefer simplicity, a single fixed term may serve them better.

If you are considering a split and want to see the blended cost modelled on your specific loan, our lending team can run those numbers for you.

Your Personal Decision Framework

The mortgage structure that costs you least in interest is only knowable in hindsight. What you can control is how well the structure fits your life. Four questions worth answering honestly:

1. How stable is your income, and are you making extra repayments? Salaried professionals with predictable pay can tolerate rolling short-term fixes and may prefer the minimum-cost certainty of a single fixed rate. Commission earners, contractors, or business owners with lumpy cash flow often benefit from a revolving credit portion to absorb irregular payments and direct surplus cash toward the loan without penalty. If your debt-to-income ratio is near the RBNZ's current limits, your bank may also constrain restructure options.
2. What are your plans for the next two to three years? If you are likely to sell, renovate, or purchase another property, shorter terms or a larger floating portion reduce break fee exposure. If you expect to stay put, longer terms become more attractive.
3. Do you have a financial buffer? An emergency fund covering three to six months of expenses provides insulation against rate increases. Without one, the budget impact of a floating rate spike is harder to absorb.
4. How does rate uncertainty affect your wellbeing? This is a legitimate factor. If the prospect of a rate increase at refix time causes genuine anxiety, the sleep-at-night value of a longer fixed term is worth something, even if it costs slightly more on average.

Frequently Asked Questions

Can I refix early, before my current term expires?

Most banks allow you to lock in a new rate 30 to 90 days before your current fixed term ends, without incurring a break fee. The exact window varies by lender. This is useful if rates are rising as your maturity date approaches. Ask your lender how far in advance you can lock a refix rate and whether the lock carries any conditions.

Does my bank have to offer me its best rate at refix time?

Banks typically offer their standard rate at refix. Special rates, for borrowers with 20% or more equity, are often available but you may need to ask explicitly or negotiate. Comparing your offer against rates advertised on the bank's website, or what a competing lender is offering, is always worthwhile.

What if I want to fix part of my mortgage with one bank and part with another?

Splitting across banks is technically possible but uncommon in practice, because most residential mortgages use a single registered security (a first mortgage over the property). A second lender would require a second-ranking security, which most mainstream banks will not accept. Splitting across terms within a single bank is the practical alternative.

Should I switch banks when I refix?

Switching banks is refinancing, as distinct from refixing with your existing lender, and refix time is a natural moment to consider it. Switching can unlock lower rates, cash-back incentives, or a better service experience. The trade-off is paperwork, legal costs, and the time involved in a full application. Cash-back offers from the new lender often cover some or all of those switching costs, but read the clawback conditions carefully. Our article on whether to refinance your mortgage covers the costs and benefits in detail.

Structure First, Term Second, Rate Last

When you sit down to refix, work in this order. First, decide the structure: single fixed term, a split across multiple terms, or a combination with revolving credit. Second, choose the term or terms based on your income stability, plans for the next few years, and tolerance for rate uncertainty. Third, and only after those decisions are made, compare the rate across lenders and negotiate. Most borrowers spend all their energy on the third step and very little on the first two, which is where the real value sits. Structure absorbs mistakes; the rate is just the price tag.

If your situation involves multiple properties, income from self-employment, or a loan structure you have outgrown, book a complimentary sense-check of your structures with our lending team.