August 6, 2025

Understanding Fixed vs Floating Mortgage Rates in New Zealand

Choosing the right interest-rate structure for your home loan has a bigger impact on lifetime costs than most borrowers realise. In 2025, the spread between a sharp one-year fixed offer and a standard floating rate can exceed 150-200 basis points, so the decision deserves a careful look. This guide from Capital Advice, mortgage and insurance brokers based in Wellington, explains how fixed and floating rates work in Aotearoa, the current market landscape, and practical ways to blend the two for flexibility and savings.

Fixed Rates: Certainty Up Front

A fixed-rate mortgage locks the interest rate for a set term, typically six months to five years.

Key advantages

• Budget certainty: Repayments stay the same for the chosen term, protecting household cash flow if rates rise.

• Easier planning for savings goals: Predictable payments make it simpler to schedule other expenses such as KiwiSaver top-ups, childcare costs or lifestyle expenses.

When a longer fix can help: If you need maximum certainty for maternity leave, a planned OE, or tight business cash flow, a two or three-year term can provide breathing room.

Trade-offs

• Limited pre-payments: Most banks cap extra principal payments (for example $10,000 a year or 5% of the balance) before early-repayment charges apply.

• Break-fees if you exit early: Selling, refinancing, or refixing before the term ends can trigger charges that wipe out interest savings.

• Missed upside if rates fall: You stay on the booked rate until the term ends, even if market rates slip lower.

Floating Rate: Flexibility that Moves with the OCR

A floating or variable rate typically changes whenever the Official Cash Rate (OCR) moves. The RBNZ cut the OCR to 3.25% on 28 May 2025, its second trim this year as inflation eased.

Benefits

• Unlimited lump-sum payments: Pay bonuses, inheritances or side-hustle income straight off the principal without penalty.

• Redraw and revolving options: Floating accounts often link to revolving credit or multiple offsets, letting savings cut daily interest.

• Switch to fixed at any time: You can move all or part of the balance onto a term rate whenever it suits.

Risks

• Repayments can surge: Average floating offers recently ranged from 5.95% for a sharp special to 8.55% for some standard products.

• Budget uncertainty: Each OCR review may adjust your monthly repayment.

Floating works best if you intend to clear debt aggressively or expect an equity windfall soon.

What Do Rates Look Like in June 2025?

Below is a snapshot of publicly advertised owner-occupier rates with at least 20% equity:

• Six-month fixed: 5.25%

• One-year fixed: 4.89-4.95%

• Two-year fixed: 4.95%

• Three-year fixed: 4.99-5.15%

• Floating specials: 5.95-6.49%

While specials apply to borrowers with strong equity and income, they show the current curve: shorter fixed terms remain cheaper than floating, but the margin has narrowed since the OCR cuts began.

Factors to Weigh Before You Decide

1. Cash-flow comfort: Stress-test repayments at least 2% above today’s rate on any portion you leave floating.

2. Future plans: Selling, major renovations or downsizing homes inside 12-24 months favour shorter fixes or larger floating slices to avoid break fees.

3. Rate outlook: Most economists expect modest OCR easing through late 2025, but no one can guarantee the pace. Balancing fixed savings now against possible drops later is prudent.

4. Extra payment habit: If you regularly pay more than the minimum, floating or a revolving credit component can turbo-charge your progress whilst still giving you flexibility.

5. Offset benefits: Linking pay and savings accounts to a variable loan can cut interest markedly, especially for self-employed or commission earners with uneven income.

Decision Checklist

• Compare at least three lenders’ special and standard rates.

• Calculate repayment shock if floating bumps 1% higher.

• Ask each bank about break-fee formulas and prepayment limits.

• Consider an offset account and check its fees against likely savings.

• Review the structure with an adviser every 12 months or before any big life change.

How Capital Advice Can Help

Our Wellington team lives and breathes mortgage strategies. We crunch the numbers, negotiate with multiple lenders and design a structure that suits your goals rather than the bank’s. The service costs you nothing, and the relationship lasts for the life of your loan.

Ready to take the next step? Call 04 495 5903, email info@capitaladvice.co.nz for a free, no-obligation chat. A 15-minute conversation today could save thousands in interest over the coming years.

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