Fixed vs Floating: Which Mortgage Type Is Right in 2026?

Choosing between a fixed-rate and a floating-rate mortgage is one of the first big decisions you will make at settlement, and one you will revisit every one, two, or three years for the life of the loan. The "best" answer is not the lower headline rate — it is the structure that gives you the right balance of certainty, flexibility, and total interest cost.

Fixed rates: certainty at a cost

A fixed-rate loan locks your interest rate for a defined term — most commonly six months, one year, two years, three years, or five years in New Zealand. The repayments stay the same regardless of what the Reserve Bank does with the OCR or what the bank does with its variable rates. This certainty is the main attraction.

The trade-off is flexibility. Lump-sum repayments above your contracted limit can trigger "break costs" if rates have moved lower. Restructuring or refinancing during the fixed term can be expensive, particularly in a falling-rate environment.

Floating rates: flexible but exposed

A floating-rate loan tracks the bank's published variable rate, which moves up and down with the OCR. There are no break fees because there is nothing to break — you can repay any amount, restructure, or switch lenders at any time without penalty. That makes floating loans well suited to:

• Borrowers expecting a windfall (inheritance, bonus, business sale)
• Bridging periods between selling one property and buying the next
• Revolving credit and offset structures

The downside is that floating rates in NZ are usually 1 to 2 percentage points higher than the lowest fixed rates on offer at any given moment. Pure floating is rarely the cheapest path over a full mortgage lifecycle.

The "split" approach most Kiwis actually use

A practical middle ground — and the structure many of our clients choose — is to split the loan into two or three pieces with different terms. For example, on a 600,000 dollar mortgage you might fix 250,000 for one year, 250,000 for two years, and leave 100,000 floating for flexibility. This achieves three things:

1. Smooths out interest-rate timing risk
2. Lets you make unlimited extra repayments on the floating portion
3. Means only part of your loan rolls off fixed at any given time, so you are never re-pricing the whole mortgage at once

What 2026 looks like

The Reserve Bank's OCR cycle continues to dominate the conversation. With OCR levels having eased meaningfully in 2025, the shape of the yield curve in early 2026 has favoured short-to-medium fixed terms (six months to two years) over five-year fixed. That can change quickly — the right call depends on what you think rates will do, not what the bank or even your adviser thinks.

Get the structure right before you sign

Loan structure is one of the most under-discussed decisions in a home loan. It can cost (or save) tens of thousands of dollars over a typical mortgage life. Talk to SMS Loans about whether your current split — or your proposed structure for a new loan — fits your goals and your cashflow.