Home loans

What is a fixed-rate home loan?

Last verified · Methodology

What it means

Most New Zealand mortgages are fixed for 1 to 3 years at a time, not for the full 25 or 30 years of the loan. During the fixed term your rate and repayments do not change. When it ends, the bank offers you new rates and you choose another fixed term, split the loan across several terms, or move to the floating rate, which can change at any time.

Fixing gives certainty, but repaying more than your bank's allowance or switching early can trigger a break fee. Many borrowers split the loan, fixing part and leaving part floating or on a revolving credit facility so they can pay it down faster.

Example

A $600,000 loan over 30 years at 5% fixed for 1 year costs $1,485.87 a fortnight. After the year, $591,157 is still owed; after 3 years, $572,088. If the loan refixed at 6% after the first year, the repayment on the remaining 29 years would become $1,655.34.

Run the numbers

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Related terms

Break feeA break fee is what a bank charges if you repay or change a fixed-rate home loan before the term ends and wholesale rates have fallen since you fixed.LVR (loan-to-value ratio)LVR is the size of your home loan as a share of the property's value. Banks limit owner-occupier lending above 80% LVR, so most need a 20% deposit.Low-equity marginA low-equity margin is extra interest, or a one-off fee, that a bank charges when your deposit is under 20% and the loan is above 80% LVR.
Fixed-rate home loan: common questions

A fixed-rate home loan locks the interest rate for a set term, usually 6 months to 5 years. When it ends you refix or roll to the floating rate.

It depends on where rates go, which nobody knows. Shorter terms let you reprice sooner; longer terms give certainty. Splitting across terms spreads the risk.

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