Fixed, Floating or both?

by Oct 8, 2015First Home Buyers, Mortgages

The world of home loans can be a difficult terrain to manoeuvre, especially for first-time buyers. There are a wide range of different products and facilities that need to be looked at and understood during the initial search process in order to ensure you secure the best possible mortgage option for your needs. This is where a qualified Broker comes in, they look after you, not the Bank!

Regardless of whether you’re interested in buying your first family home or you’re in the market for potential investment opportunities, the basics of home loans remain the same. There are two main types of mortgage you’ll encounter – each with its own strengths and weaknesses.

The differences between a fixed-rate home loan and a variable/floating-rate home loan should be factored into your overall approach towards your goals. Taking these things into account will help you find the right mortgage option for you, one that conforms to your long-term property plans.

Fixed-Rate Home Loan

If you’re a young family or first-time buyer looking for a safe, secure mortgage product that you can rely on week in and week out to remain the same, a fixed-rate home loan is the best option to consider.

For a fixed period of time – usually between one and three years in NZ – your home loan interest will be set at a certain level. The benefits of this include giving you peace of mind by knowing that your repayment amount will always be the same. This can help you budget for the future and provide stability for your payments, as well.

Furthermore, being locked into a certain interest rate provides you with protection from fluctuations in the economy. If you managed to secure a competitive fixed-rate home loan, you could find yourself making comfortable repayments in no time.

Variable-Rate Home Loan

The second most common type of home loan in NZ is a variable/floating-rate, which works in a different way to a fixed-rate mortgage. Unlike a fixed-rate home loan, a variable-rate product doesn’t have a set interest repayment percentage.

One benefit is the potential for lower interest payments if national interest rates drop. This is something fixed rate holders cannot take advantage of due to their contract. However, the opposite is also true – if interest rates rise, so too will your repayments.

The biggest benefit with a variable/floating-rate home is possibility to overpay on the minimum amount and so reduce your debt faster. In these days of historically low rates this is a very sensible option and will save heaps in interest payments in the future.

Mix and match?

Absolutely. Once you have your pre-approval and either purchase or refinance a property it’s time to look at the structure of the mortgage. Do a budget and see if it’s possible to overpay in the next say 2 years by $500 a month. If so then fix the bulk of the loan for say 2 years and float the top $12,000. You are not committed to overpaying but if you do you will find every $ in overpayment comes off the debt so reduces your mortgage in the fastest way possible. When it comes to refix repeat the process. Changing to fortnightly payments also helps as interest is charged daily on most loans in NZ.

How do I know which is best for me?

Ask! When you ready to either purchase or refinance either call us on 0800 536337 or email

About iLender

At iLender we put your best interests first and not the Bank – our advice is unbiased as all Lenders who we do business with pay about the same in commissions.

Although we are Auckland based Mortgage Brokers, we help customers everywhere in New Zealand and overseas with buying property in New Zealand, as we are very much about online and giving advice here and now!

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