One of the most common questions I get is whether to fix or float a mortgage rate. It comes up when people first take out a loan, when their fixed term expires, and any time rates move in the news. Unfortunately, there's no single right answer, it depends on your situation, your risk tolerance, and what you're trying to achieve.

Here's a plain-language breakdown of how it actually works.

What's the difference?

Fixed rate

When you fix your rate, you lock in an interest rate for a set period, typically anywhere from 6 months to 5 years. During that time, your rate doesn't change regardless of what happens in the market. Your repayments stay predictable.

The upside: certainty. You know exactly what you're paying every month.

The downside: if rates drop during your fixed term, you're stuck paying the higher rate. And if you need to break the loan early (e.g. you sell, refinance, or have a significant change in circumstances), you'll likely face a break fee, which can be substantial.

Floating rate

A floating rate moves with the market. When the Reserve Bank changes the Official Cash Rate (OCR), floating mortgage rates tend to follow. Your repayments go up when rates rise and down when rates fall.

The upside: flexibility. You can make extra repayments, lump sum payments, or pay off your loan entirely without penalties. You also benefit immediately if rates fall.

The downside: uncertainty. Your repayments can change month to month. In a rising rate environment, this can put real pressure on your budget.

"Neither fixed nor floating is inherently better. The right choice depends entirely on your circumstances, your outlook on rates, and how much certainty you need."

What most people do: a split structure

Most homeowners end up with a split mortgage, part fixed for certainty and predictability, part floating for flexibility. For example, if you have a 00k mortgage, you might fix 50k and keep 50k floating. This way you get the stability of a fixed rate on the majority of your debt, while still having the ability to make extra payments on the floating portion.

The right split depends on your income, your ability to absorb rate changes, and whether you have upcoming life events that might change your plans.

How to think about it right now

When rates are expected to fall, floating (or fixing short-term) can make sense, you'll benefit when rates come down. When rates are expected to rise, locking in a fixed rate protects you from increases.

A word of caution: nobody can predict interest rates with certainty, not economists, not banks, and not financial advisers. Making a decision based purely on rate speculation is risky. The more important factors are your personal circumstances, your budget, and how much uncertainty you can comfortably handle.

Things to consider before deciding

  • Are you likely to sell or refinance in the next year or two? If so, floating or a short fixed term avoids break fees.
  • Do you have irregular income or are expecting a lump sum? Floating lets you make large extra payments without penalties.
  • How tight is your budget? If a rate rise of 1-2% would significantly impact you, locking in a fixed rate provides security.
  • How long is your loan? The longer you have remaining, the more the choice matters over time.

Quick tip: If your fixed rate is coming up for renewal, don't just accept what your bank offers. That's often the moment where the biggest savings can be found, by shopping around or restructuring. That's exactly what I help with.

The bottom line

There's no universally right answer to fixing vs floating. What matters is understanding the trade-offs and making the choice that fits your situation. If you're coming up to a refix or thinking about refinancing, a quick conversation costs nothing and can make a real difference to the outcome.