What fixed terms should I be looking at for my mortgage?
Sunday, 15 March 2026
Senior business reporter Rob Stock answers your money questions. Got a question for Sunday magazine? Email it to sundaymagazine@stuff.co.nz
QUESTION: What fixed terms should I be looking at for my mortgage? Interest rates are going to rise, but what’s my best strategy?
ANSWER: For me, for the most part, predicting interest rates is a fool’s game.
I’ll let the authors of Interest Rate Forecasts: A Pathology explain. They studied central bank forecasts for future official cash rates in the US, UK and New Zealand.
Their conclusion: “such forecasts in New Zealand and the United Kingdom have been excellent for the immediate forthcoming quarter, reasonable for the next quarter, and useless thereafter.”
Living in an uncertain world is the fate of all. The last few years have provided an object lesson in the world’s respect for people’s forecasts.
I asked an economist how he responds to this question.
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Over the last 10 to 20 years, people who consistently “rode the wave” and went for one-year fixed rates did best, he said.
He was a bit of a “gambler” with his own home loan, however, and he was well-paid enough to take punts.
I asked a big honcho at a big mortgage advisory the same question.
He said many mortgage debtors were leary about long term calls, like locking in to five year fixed terms.
There was a “gravitational” pull towards the cheapest rates, he said, and rates had to be really low for people to be willing to take a really long-term punt like locking in for five years.
But where people were quite good at short-term forecasting was when they came off a fixed term in the months before they expected the Reserve Bank to cut the official cash rate.
Then they were willing to take a holding pattern in a more costly floating rate loan, until the Reserve Bank showed its hand.
Your mortgage strategy should be tailored to your personal circumstances, and your willingness to take risk.
Longer fixed terms give you certainty of what you will be paying. That’s like paying for an insurance policy. But they limit your flexibility, and can lock you in to paying break fees, should something happen to force you sell up.
Many people can’t see so far into their own future, and fix for shorter periods, which is what the banks prefer you to do as well, but there’s a short period of certainty over the repayments.
Many like to spread their home loans across multiple fixed periods, putting some on one year, some on two, etc. This spreads their risk of sudden swings in interest rates. It also brings its own lack of flexibility. It makes it hard, and more costly, to switch bank.
May I encourage you to think that it’s not just the rate you pay, but the rate at which you repay, that matters.
When I had a mortgage on my family home, I used to start the year with some on one-year, some on two, and a portion on floating, which was the “extra” I aimed to pay off.
By the end of the year the two-year chunk became one-year, and I refixed the maturing one-year for two years, minus the extra chunk I held to pay off fast in revolving credit.
I made no attempt to predict rates, but I did pay the mortgage off fast, so I saved on interest paid.
There’s a lot of over-paying going on right now by people, so I know a lot of people sympathise with my position.
Reserve Bank figures show in October, November and December, people overpaid their home loans by $4.8 billion. Collectively, that’s somewhere in the region of $240m less of an interest drag on their lives.