One of the most common questions a mortgage adviser gets isn’t “can I borrow this much” — it’s “should I fix, and for how long?” The honest answer is that nobody can predict interest rates with certainty. But there are principles that help you make a sound decision for your situation.

What Fixed and Floating Rates Actually Mean

A fixed rate locks in your interest rate for a set term — typically six months to five years. During that period, your rate doesn’t change regardless of what happens to the OCR or wholesale rates. A floating rate moves with the market, generally tracking the RBNZ’s Official Cash Rate. Floating rates are usually higher than short-term fixed rates, but they allow you to make additional repayments and pay off the loan faster without penalty.

The OCR Cycle and What It Means

The RBNZ began cutting the OCR in mid-2024 after a period of aggressive tightening. Lower OCR rates flow through to lower fixed and floating rates across most banks, though the relationship isn’t always direct or immediate.

When rates are falling, many borrowers assume they should stay floating or fix for very short terms to “catch” even lower rates as they come. When rates are rising, the instinct is to lock in quickly before they go higher. Both of these are attempts to time the market — and market timing is notoriously difficult even for professional economists. The RBNZ’s own forward guidance is regularly revised.

The Case for Fixing

Fixing provides certainty. You know exactly what your repayment will be for the term of the fix, which makes budgeting straightforward. If you have tight cash flow, a variable payment that could increase 0.5–1% is a material risk. Fixing removes that uncertainty.

Fixed rates are also typically lower than floating rates, meaning your repayments start lower from day one. If you’re stretching to meet repayments, the lower fixed rate can make a real difference.

The Case for Staying Floating

Floating gives you flexibility. If you receive a lump sum — a bonus, an inheritance, a tax refund — you can put it directly against the loan without triggering break costs. If your circumstances change and you want to sell or refinance, you’re not locked in.

For borrowers with variable income, those expecting to sell within 12 months, or those who anticipate a significant change in circumstances, floating can be worth the premium.

Break Costs: The Hidden Risk of Fixing

If you fix your rate and then need to break the term early — to sell, to refinance, or to pay off the loan — the bank will charge a break cost. These can be substantial, particularly when wholesale rates have risen since you fixed. Before committing to a fixed term, it’s worth considering whether your situation might require breaking early.

The Split Strategy

Many borrowers fix a portion of their loan and keep a portion floating. For example, you might fix $600,000 for two years and keep $100,000 floating to make additional payments. This hedges your rate exposure while maintaining some flexibility. It’s one of the most common approaches we see working well for borrowers with some discretionary income they’d like to direct at the loan.

The Right Approach

There’s no universally correct answer. The right rate structure depends on your income stability, your plans for the property, how much cash flow flexibility you have, and how you’d handle higher repayments if rates moved against you. That’s a conversation worth having with an adviser — not just a choice to make on a bank’s website.