Use the calculator
Try the Mortgage Repayment Calculator to put these concepts into practice.
Key takeaways
- ✓Fixed rates provide certainty; floating rates provide flexibility for extra repayments
- ✓Shorter fixed terms (6–18 months) are best when rates are expected to fall
- ✓Longer fixed terms (3–5 years) provide certainty when rates are expected to rise
- ✓Splitting (part fixed, part floating) is the most common NZ strategy
- ✓The floating rate is typically 0.5–1.5% higher than the best short-term fixed rates
How fixed and floating rates work in NZ
Fixed rate: Your rate is locked for a set term — most commonly 6 months, 1, 2, 3, or 5 years. The rate doesn't change during the term. At expiry you refix at whatever rates are available.
Floating rate (variable): Your rate moves with the market, typically tied to your bank's reference rate which follows the OCR (Official Cash Rate) set by the RBNZ. Key advantage: unlimited extra repayments and full flexibility.
NZ floating rates are typically 0.5–1.5% higher than the best available 1–2 year fixed rates. This premium is why most NZ borrowers fix at least a portion of their mortgage.
💡 Tip: Floating doesn't mean chaotic payments — many banks offer a "fixed repayment" option on floating rate loans where your payment stays the same even as the rate moves. This provides cash flow predictability while retaining extra repayment flexibility.
Reading the rate cycle
The "correct" fixed term depends on where rates are in the cycle:
Rates at cycle peak (expected to fall): Fix for a short term (6–12 months) to refix at lower rates sooner. Many NZ borrowers were in this position in 2023–2024 as rates stabilised at elevated levels.
Rates at cycle trough (expected to rise): Fix longer (3–5 years) to lock in the low rate. This was optimal in 2020–2021 — unfortunately many borrowers fixed for short terms and were hit by rapid 2022 increases.
Rates uncertain (mid-cycle): Split strategies provide a hedge — some short, some medium, some floating. This is the most common situation.
The NZ split mortgage strategy
The most popular NZ structure for borrowers with flexibility needs:
Fix the majority for rate certainty: Choose the term based on your rate view and how long you'll stay. Fixing 60–70% provides predictable lower-rate payments.
Keep a portion on floating: 20–40% floating allows unlimited extra repayments.
Ladder fixed terms: Fix different portions at different terms — one at 1 year, another at 2 years, another at 3 years. This "laddering" reduces the risk of having everything refix in a high-rate environment.
Example for NZ$600,000: NZ$200,000 fixed 1 year at 6.4% NZ$200,000 fixed 2 years at 6.2% NZ$200,000 floating at 7.2% (for extra repayments)
Frequently Asked Questions
Calculators mentioned in this guide
Disclaimer: Calculations are estimates for general guidance only and do not constitute financial advice. Mortgage rates, LVR restrictions, and lending criteria vary by lender and may be subject to RBNZ requirements. Consult a registered financial adviser before making property decisions.