Interest Rates - Floating Vs Fixed

Interest Rates – Floating Vs Fixed

SM Property

January 26, 2023

When it comes to mortgages, borrowers can choose between fixed interest rates or floating interest rates. Understanding the difference between the two can help you make an informed decision about which type of mortgage is right for you.

Fixed Interest Rates

A fixed interest rate means that the rate on your mortgage will remain the same for the amount of time you have fixed your rate for. In New Zealand, there’s options ranging from six months to five years. This can provide borrowers with predictability and stability when it comes to their monthly mortgage payments. It also means that regardless of any interest rate changes in the market, your rates will not change. With a fixed interest rate, borrowers know exactly how much they will be paying each month and can budget accordingly. This can be a good option as you will be protected from the possible increased cost of borrowing.

Floating Interest Rates

On the other hand, a floating interest rate, also known as an adjustable-rate mortgage (ARM), means that the interest rate on your mortgage can change over time. In New Zealand, interest rates decisions are made by the banks but are affected by the Official Cash Rate which is set by the Reserve Bank of New Zealand. When the OCR changes, the interest rate on your mortgage will typically also change.

The benefit of floating rate is that they typically allow larger early repayments and will have no break fees. This can be attractive for borrowers who don’t plan to stay in their home for a long period of time, or who expect their income to increase over time.

However, it’s important to note that with a floating interest rate, the monthly mortgage payments can increase if the index rate goes up. This can make it more difficult for borrowers to budget and plan for their future expenses.

The team at SM Property have good connections with some highly recommended mortgage brokers who can offer you reliable and expert advice about which rates are right for you. Click here to chat to one of the team today so we can point you in the right direction.