Fixed vs Floating: Why the Window to Lock In a Low Rate Is Closing New Zealand borrowers have spent the last couple of years enjoying a gradual drift downward in mortgage rates. That environment appears to be ending. With the Reserve Bank now on a hiking path and wholesale rates climbing, the decision between fixing and floating has become far more consequential than it was six months ago. Where Rates Sit Right Now At the time of writing, the lowest advertised one-year fixed rate sits around 4.65%, with two-year money available from roughly 5.19% and three-year fixed from about 5.29% at the major banks. These are still attractive numbers by recent historical standards — but they are advertised specials, not guarantees, and they are being repriced as banks respond to a rising OCR and firmer wholesale funding costs. Floating rates, by contrast, have already moved. Major banks have lifted floating and flexible home loan rates by 0.25%, pushing floating well above 6% for most borrowers. The gap between floating and the best fixed offers is now wide enough that floating "just in case rates fall further" is a considerably more expensive bet than it was a year ago. The Real Trade-Off Fixing gives you certainty. You know exactly what your repayments will look like for the term you choose, which makes budgeting far easier — particularly useful when other household costs like groceries and power are also rising. The trade-off is flexibility: breaking a fixed term early, or restructuring your loan mid-term, usually comes with a break fee. Floating gives you flexibility — the ability to make extra repayments, restructure, or refix without penalty — but at a real and growing cost premium. In a falling-rate environment, that flexibility can pay off. In a rising-rate environment, it's expensive insurance you may not need. Why Term Length Matters More Than Ever With economists split on how far and how fast the OCR will rise, more borrowers are gravitating toward shorter fixed terms — typically 12 to 18 months — to retain the ability to reassess without locking in for years at a rate that might not reflect where the market lands. Others, more risk-averse, are choosing to fix for two to three years precisely to insulate themselves from further hikes. There's no single right answer here — it depends on your income stability, how tight your budget already is, and how much risk you're comfortable carrying. What We'd Suggest Before You Decide - Review your refix date now, not when the letter arrives. Rates can move meaningfully in the weeks around a hike. - Consider splitting your loan across two or three different fixed terms, so you're never fully exposed to one rate reset. - Model your repayments at a rate 0.5–1% higher than today's specials, so a hike doesn't catch your budget off guard. The Bottom Line The cost of getting this decision wrong has gone up. A rate structure that made sense in a falling market may not be the right fit for a rising one. Simply Mortgages can run the numbers across fixed, floating, and split structures for your specific situation, and help you lock in with confidence before the next OCR review reshapes the offers on the table.
