Fix or Float? How to Think About Your Mortgage in 2026

It is one of the most common questions we hear from clients right now: should I fix my mortgage, or stay floating?

Interest rates have fallen significantly from their 2023 peak. The Reserve Bank of New Zealand (RBNZ) has cut the Official Cash Rate (OCR) multiple times since late 2024, and fixed mortgage rates have followed. But with the 2026 election introducing policy uncertainty — and global economic conditions still unsettled — the path ahead is not obvious.

This post is not a prediction of where rates are going. No one knows that with certainty, including the banks. What it is is a practical framework for thinking through the decision — and the tax and cash flow considerations that are specific to business owners and property investors.

As of mid-2026, the OCR sits at 3.25% — down from a peak of 5.5% in mid-2023. One-year fixed mortgage rates from the major banks are broadly in the 5.5–6.0% range. Two-year rates are slightly lower. Floating rates are typically 1–1.5% above the one-year fixed rate.

The RBNZ has signalled it expects to hold the OCR broadly stable through the remainder of 2026, with further cuts possible in 2027 if inflation remains contained. Markets are pricing in modest further cuts over the next 12–18 months, but the pace and timing are uncertain.

The fix vs. float decision comes down to a simple trade-off:

Fixing gives you certainty. You know exactly what your repayments will be for the fixed term. If rates rise, you are protected. If rates fall further, you miss out — and you may face break fees if you want to exit early.

Floating gives you flexibility. Your rate moves with the market. If rates fall, your repayments drop automatically. You can make lump-sum repayments without penalty. But if rates rise, your costs go up immediately.

Neither is inherently better. The right choice depends on your specific situation: your cash flow, your risk tolerance, your plans for the property or business, and how much certainty you need.

Rates may not fall much further. The RBNZ has already cut significantly. If inflation picks up — driven by election spending promises, global supply shocks, or a weaker NZD — the next move could be up, not down. Locking in a rate now protects you against that scenario.

Certainty has real value for budgeting. If you are running a business or managing a rental property portfolio, knowing your debt servicing cost for the next 12–24 months makes cash flow planning much easier. That certainty is worth something even if floating rates end up slightly lower.

One-year fixed rates are competitive. The one-year term currently offers a reasonable balance between certainty and flexibility — you are not locked in for five years, and the rate is meaningfully below floating.

Further OCR cuts are possible. If the RBNZ cuts again in late 2026 or early 2027, floating rates will follow. Staying floating means you capture those cuts immediately rather than waiting for your fixed term to expire.

Flexibility matters if your plans might change. If you are considering selling a property, refinancing, or restructuring your business debt in the next 12 months, floating avoids break fees. Break fees on fixed-rate mortgages can be substantial — sometimes tens of thousands of dollars — if rates have moved significantly since you fixed.

The floating premium is not as large as it used to be. When the OCR was at 5.5%, floating rates were punishingly high. At current levels, the gap between floating and one-year fixed is smaller, making floating more viable as a short-term holding position.

Many borrowers — and most of our clients who ask about this — end up with a split: part of the loan fixed, part floating. This is not a cop-out. It is a rational response to genuine uncertainty.

A typical split might be 50% fixed for one year and 50% floating. This gives you:

• Certainty on half your debt servicing cost
• Flexibility to make lump-sum repayments on the floating portion
• Exposure to rate falls on the floating portion without full exposure to rate rises

The right split depends on your total debt, your cash flow, and how much flexibility you need. There is no universal answer.

If you have a business loan or overdraft facility, the fix vs. float question applies there too — and the considerations are slightly different.

Business loans and overdrafts are usually floating. Most business lending is on floating or short-term fixed rates. If your business has significant debt, the OCR cycle matters directly to your interest costs.

Interest on business debt is tax-deductible. Unlike a personal mortgage, interest on a business loan is a deductible expense. This means the after-tax cost of your debt is lower than the headline rate. At a 28% company tax rate, a 6% interest rate costs you 4.32% after tax. This does not change the fix vs. float decision, but it is worth keeping in mind when comparing options.

Cash flow certainty matters more for some businesses. If your business has tight margins or seasonal cash flow, the certainty of a fixed rate on your term loan may be worth more than the potential saving from staying floating. Conversely, if you have strong cash flow and want the flexibility to pay down debt quickly, floating may suit you better.

For landlords, the interest rate decision intersects with the election-year uncertainty around interest deductibility (see our post on rental property and the 2026 election).

If interest deductibility is at risk, your after-tax cost of debt could change. Under the current rules, you can deduct mortgage interest against rental income. If Labour wins and phases out deductibility again, the effective cost of your debt increases — because you lose the tax benefit. This does not change whether you fix or float, but it does change the overall economics of your investment.

Fixing for longer may make sense if you are holding long-term. If you have no plans to sell and want to lock in your debt servicing cost for the next two years, a two-year fixed rate gives you certainty through the election and into the next government's first budget.

Watch your break fee exposure. If there is any chance you might sell a property in the next 12–24 months, be cautious about fixing for a long term. Break fees are calculated based on the difference between your contracted rate and the current market rate — if rates fall after you fix, the break fee can be significant.

When you talk to your bank or mortgage broker, these are the questions worth asking:

1. What is the break fee if I need to exit early? Get this in writing for any fixed term you are considering.
2. Can I make lump-sum repayments on a fixed loan? Some banks allow limited lump-sum repayments without penalty — know the rules before you fix.
3. What is the refix rate likely to be when my current term expires? Banks will not guarantee future rates, but they can give you a sense of where the market is pricing future terms.
4. Is a split loan available, and what are the minimum amounts? Most banks will split a loan, but there may be minimum amounts for each portion.

There is no universally right answer to fix or float in 2026. The honest position is that rates could go either way from here, and anyone who tells you otherwise with certainty is guessing.

What we can say is:

• If certainty and budgeting stability matter to you, fixing for one year at current rates is a reasonable choice.
• If flexibility is important — because you might sell, refinance, or pay down debt — floating or a short fix keeps your options open.
• A split strategy is a sensible middle ground for most borrowers.

The decision is ultimately about your specific situation, not the market. If you want to talk through how your mortgage structure fits with your overall tax and financial position, get in touch — it is the kind of conversation we have with clients regularly.

Related reading: Rental Property Tax NZ: What Landlords Need to Know | Rental Property and the 2026 NZ Election: What Investors Need to Know | Do I Need a Trust? A Plain-English Guide for New Zealanders