By Belinda Castles
Researcher | Kairangahau
Finally, mortgage interest rates are starting to drop. If you’re getting a new home loan, or your mortgage fixed interest rate is coming up for renewal, what’s the smartest way to save money?
As at September this year, New Zealanders owed more than $380 billion on their mortgages. Approximately 88% was in fixed-rate mortgages (where the interest rate is set for a specific period). The other 12% was on floating rates (where the interest rate can go up or down at any time).
More than 60% of the value of mortgages held by people who are owner-occupiers is due to come off a fixed rate within the next year. This means a lot of households will need to make the fix-or-float decision.
If that’s you, you will be relieved we’re not winding the clock back 17 years. Between May and August 2008, the floating rate peaked at 10.72%. On such a rate, with a $500,000 mortgage, you would have been paying more than $53,000 each year in interest. Fixed rates were slightly cheaper, but the 1-, 2- and 5-year rates were nearly all, on average, around 9%.
More recently, floating rates peaked between October 2023 and July 2024 at 8.61%. Over the same period, 1- and 2-year fixed rates ranged from 7.15% to 7.76%. 5-year fixed rates ranged from 6.79% to 7.2%.
Fast forward to September 2025, and the average floating rate was 6.62% ($33,100 a year in interest on a $500,000 loan), and the 1-year rate had dropped to 5.37% ($26,850 in interest).
While current interest rates affect what you pay today, how do rates affect what you pay over the life of your mortgage? We asked a banking expert if it would be cheaper to fix or float and looked at past standard and special mortgage rates to find out.
Is it cheaper to fix or float?
We all want to pay the least interest possible on our mortgages, so which option and fixed term period consistently produces the lowest interest rates?
David Tripe is adjunct professor of banking at Massey University school of accountancy, economics and finance.
“In New Zealand, banks compete more vigorously for fixed-rate loans because they can be confident they will be keeping the fixed-rate business until the end of the term. Floating rates can be repaid at any time, which increases the risks for the bank managing its funding. Also, the banks’ margins are generally lower on fixed rate loans, which usually results in lower interest rates for homeowners.”
What’s the cheapest standard interest rate?
Standard mortgage rates
Our graph shows the average floating, 1-, 2- and 5-year fixed rates over a 15-year period. Over that time, the average 1-year fixed rate was 5.38%, while the average 2-year fixed was 5.57%. Average floating rates (6.17%) were similar to the average 5-year fixed rate (6.16%).
This means you would have been slightly better off on 1- and 2-year fixed rates than floating or longer fixed rates over this 15-year period.
What are special interest rates?
The more you can stump up towards your deposit, the better. Not only does this mean you won’t have to borrow so much money, but you may also be able to convince your bank to give you a special fixed interest rate. Banks typically require a 20% deposit to offer the special interest rate.
Special mortgage rates
Special interest rates are lower than the standard fixed rate of the same term. In September 2025, the average 1-year rate was 5.37%, compared with an average special rate of 4.73%. That’s a saving of $3,200 a year on a $500,000 mortgage.
Although interest rates are decreasing, check you’ll be able to manage payments if interest rates were to rise again. You can work this out using our mortgage calculator.
Pros and cons of fixed and floating interest rates
Fixed interest rates
The lender cannot change the interest rate for a certain period, such as 1 year.
The main advantage of a fixed interest rate is repayment certainty. For a set period, you know exactly what your payments will be. This makes budgeting easier, and you won’t be affected if rates rise.
The downside is you can’t opt out of your fixed term – unless you pay a break fee, which could negate any potential savings. This also means you’ll miss out if interest rates drop.
Some banks may also charge a penalty if you make extra repayments during the fixed-rate period.
Floating interest rates
The lender can change a floating interest rate (also called a variable or flexible rate) whenever it chooses.
A floating interest rate offers greater flexibility. If you come into some extra money, such as an inheritance or work bonus, you can put it towards your mortgage without being stung by fees or having to wait until your fixed interest rate expires.
However, you’re at the mercy of interest rate fluctuations – great if the rates go down, not so great if they go up!
Budgeting can be more difficult as your repayments may vary.
Can you have a fixed rate and a floating rate at the same time?
Tripe said if you want more flexibility to make repayments, you could put a portion of your loan on a floating rate and the rest on a fixed rate. This means you will be able to repay part of your loan faster if extra money becomes available for you. But you will still have reasonable certainty about the size of your repayments from the fixed interest portion of your mortgage.
Repayment calculator
Enter your loan details to calculate your regular repayments and the total interest you'll pay over the term of the loan. (The calculations are for a standard table mortgage.)
Rent or buy?
Use our calculator to compare the financial implications of buying and renting over 20 years.
The calculations are based on the assumption that, if you rent, you invest the money you would otherwise have spent on house buying - the deposit, insurance, ongoing mortgage payments (minus rent) etc.
While we've made every effort to keep the assumptions underlying our model reasonable, it's still just informed guesswork. You can play around with the figures to see what impact changing them has.
Note: Real interest rate = the interest rate on your savings, after tax, less the inflation rate.
Should you rent or buy?
As well as potential increases in the real value of your house, home ownership has other benefits. You can use your house as security to borrow more money. There's also the pride of owning your place, which you can alter as you please, knowing that no landlord can evict you. Moreover, repaying the home loan can be viewed as a form of compulsory saving.
But there are disadvantages with home ownership. It costs a great deal of money to buy and run a house. You'll need a deposit, and have to find money for mortgage repayments, insurance, maintenance, rates, etc. If you're renting, you could invest that money (less your rent). Also, if you want to move, there's the hassle and cost of selling your house. If you live in a flat, you can just give notice and leave.
Having all your money invested in your home is common in New Zealand, but does run the risk of lack of investment diversity - if house prices in your area fall, you will have lost money.
You’ll find information to guide you through the process of buying a property on the Real Estate Authority's settled.govt.nz website .
Should you use a mortgage broker?
Getting a mortgage for the first time can be daunting – there’s lots of paperwork, loan decisions and haggling to do to get the best rates.
A mortgage broker or adviser can help. They are essentially the bridge between you and the bank.
Most advisers get paid a commission from the lender (which can create a conflict of interest). They may also charge you a fee.
Before you use a mortgage broker, ask:
If they have a licence to operate
how they get paid
how many offers they’ll provide you with
which lenders they don’t represent
why they are recommending a particular loan option.
The Commerce Commission completed a study into personal banking in August 2024. Its report recommends mortgage advisers put more emphasis on the cost of lending when recommending a bank and show customers at least 3 different offers.
The Financial Markets Authority recommends you get all quotes and recommendations in writing.
For more information, see our article: Mortgage advisers: What you need to know.
Top tips for saving money on your mortgage
Here are Tripe’s top 3 tips for saving money on your mortgage.
Fixed rates are generally going to save you money compared with floating rates. However, if you want flexibility with your payments, consider having a portion of your loan on a flexible interest rate.
If you can afford to pay more than your loan’s minimum repayment, do so. The more of your loan principal you can pay off, the less interest you will pay over time.
Shopping around for interest rates is a good idea. But there’s unlikely to be a big difference between the major banks’ interest rates since the banks will match each other in a competitive fixed rates market. Interest rates aren’t the only feature banks compete on. Keep an eye out for special offers – these can be significant, especially for new customers.
