Fixed vs Floating Home Loans
Fixed Rate Loans
- Rate is locked for a set period (1–5 years typically)
- Your repayments stay the same regardless of market changes
- Pros: Predictable budgeting, protection from rate hikes
- Cons: Break fees if you need to change terms early, can't benefit from rate drops
Floating (Variable) Rate Loans
- Rate changes as the OCR (Official Cash Rate) changes
- Pros: Flexible — no break fees, can make extra repayments without penalty, often has an offset account
- Cons: Payments can rise unexpectedly, usually higher interest rate than fixed
Major NZ Banks Compared
| Bank | Typical 1yr Fixed | Typical Floating | Min Deposit | Special Features |
|---|---|---|---|---|
| ANZ | Competitive | Higher | 5% (with LVR) | ANZ Blueprint to Build |
| ASB | Competitive | Higher | 5% (with LVR) | ASB True Rewards |
| BNZ | Competitive | Higher | 5% (with LVR) | TotalMoney offset account |
| Westpac | Competitive | Higher | 5% (with LVR) | Choice floating/fixed |
| Kiwibank | Competitive | Moderate | 5% (with LVR) | NZ-owned, good service |
Mortgage Brokers vs Banks Direct
Using a Mortgage Broker
- Free to use (paid commission by banks)
- Access to multiple lenders including non-bank
- Help with paperwork and pre-approval
- Good for complex situations (low deposit, self-employed)
Going Direct to a Bank
- You deal directly with the bank's mobile lender
- Can sometimes get loyalty discounts
- Fewer options — only that bank's products
Choosing Your Loan Structure
A common strategy is to split your loan: fix part for stability (e.g., 60–80% fixed for 1–3 years) and keep part floating (e.g., 20–40%) for flexibility and extra repayments. This gives you the best of both worlds.
Pre-Approval vs Full Approval
- Pre-approval: Bank says "in principle" how much they'll lend — valid ~3 months
- Full approval: Confirmed after the bank assesses the specific property
- Always get pre-approval before you start house-hunting seriously
The 2026 Interest Rate Environment
Mortgage rates have fallen well below their 2023 peaks. The Reserve Bank cut the Official Cash Rate through 2024 and 2025, and it sat at 2.25–2.50% through mid-2026, with markets expecting around 2.75% by year-end. One-year fixed rates were roughly 5.2%–5.9% in mid-2026, with most forecasters expecting 4.8%–5.3% by the end of the year.
Banks were testing loan serviceability at a stress rate of about 7.45% in mid-2026 — down from nearly 9% at the peak — which has increased how much many buyers can borrow. Rates vary by lender, LVR and negotiation, so always compare live offers.
How Much Can You Borrow in 2026?
Your borrowing capacity is set by three things: deposit (LVR rules), income (DTI speed limits), and the bank's serviceability test. Since July 2024, banks can only write 20% of owner-occupier lending above a 6:1 debt-to-income ratio, so most buyers are capped at around 6 times gross household income before other debts.
For example, a household earning $140,000 gross with no other debt could typically borrow up to around $840,000 under the DTI cap, subject to the bank's stress test at ~7.45%. On a $770,000 median-priced home that would mean a deposit of roughly $70,000–$154,000 depending on LVR. Figures vary by lender and your exact circumstances.
Fixed vs Floating: What to Choose in 2026
- Fix for 1–2 years if you want certainty while rates hover near their cycle low — most first-home buyers choose this.
- Keep part floating (20–40% of the loan) for flexibility, extra repayments and offset accounts.
- Watch break fees — breaking a fixed rate early can cost thousands, so match the term to your plans.
- Cashback offers of 0.5–1% of the loan are common from major banks; factor them in but don't chase them at the expense of a better rate.
- New-build buyers can often get interest-only periods and LVR exemptions — ask your lender or broker.
Working With a Broker vs the Bank
A mortgage broker compares lenders for free (paid by commission) and can find low-deposit or niche products, while going direct can unlock loyalty discounts at your existing bank. In a flat market with competitive rates, the difference between the best and worst offer on a $600,000 loan can be thousands of dollars a year.
Whichever route you choose, get a written pre-approval before house-hunting, check the rate is for your actual LVR band, and ask for a full breakdown of fees — application fees, valuation fees and lender's legal fees all add up.
Splitting Your Loan: The Strategy Most Buyers Miss
Choosing "fixed or floating" is a false choice. Most advisers structure a loan in tranches so you are not making a single bet on rates:
- A floating portion — commonly 10% to 30% — which you can overpay and redraw freely. This is where extra repayments go without penalty.
- Fixed tranches of different lengths — for example half on two years, half on three. When one tranche rolls off, you re-fix it at whatever the market offers then, rather than all your debt repricing at once.
- A short fixed tranche if you expect rates to fall, and a longer one if you want certainty on the largest slice of your budget.
Ask your lender or broker to price a split before you accept a single-rate offer. There is usually no extra charge for it, and it removes the most common source of anxiety in the first three years of a mortgage.
What Lenders Actually Test
Your advertised rate is not the rate your application is assessed at, and this gap is where most surprises come from:
- The serviceability test rate is set above the offered rate, so a loan written at 5.5% may be tested near 6.5% or higher.
- DTI limits — since 1 July 2024, banks may write only 20% of owner-occupier lending to borrowers with debt above six times gross income (seven times for investors).
- Credit card and overdraft limits count as debt in full, whether used or not. Reducing a $10,000 limit to $2,000 can genuinely change an approval.
- Term assumptions. Lenders generally assess over a shorter remaining term than the 30 years you might request, and it makes a material difference to the tested repayment.
What the Loan Actually Costs Over 30 Years
At a representative 5.5% p.a. over 30 years, the arithmetic of a New Zealand mortgage looks like this:
| Loan | Monthly | Weekly | Total repaid over 30 years | Interest component |
|---|---|---|---|---|
| $500,000 | $2,839 | $655 | ≈ $1,022,000 | ≈ $522,000 |
| $700,000 | $3,975 | $917 | ≈ $1,431,000 | ≈ $731,000 |
| $800,000 | $4,542 | $1,048 | ≈ $1,635,000 | ≈ $835,000 |
Two conclusions follow. First, the interest you pay is comparable to the loan itself over a full 30-year term, which is why a floating portion and voluntary overpayments are worth more than a small rate difference. Second, repayment figures move fast with term: the same $700,000 loan over 25 years costs roughly $4,298 a month instead of $3,975 — about $320 more a month to save five years of payments.
Break Fees: Ask Before You Fix Long
A fixed-rate loan cannot be repaid early without a break fee, and break fees are calculated from movements in wholesale rates and your remaining term — not from a simple formula you can eyeball. When wholesale rates fall sharply, break fees can be surprisingly large, because the bank is being asked to give up a profitable fixed rate.