Navigating interest rates — what’s right for you?

Choosing a home loan term has never felt so daunting. After a sustained period of falling rates through 2025, most economists are now forecasting that rates will rise again, which we are already starting to see. The fixed term you pick today will determine what you’re paying for years to come.

Rather than just tell you what to pick, we want to help you think it through. The right answer genuinely depends on your personal circumstances and future plans.

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Where we’re at

The OCR fell steadily across 2025, bringing fixed rates down with it. But the global picture has shifted. Trade tensions, geopolitical uncertainty, and overseas inflation pressures are all feeding back into the NZ economy. Most economists now expect rates to rise, making the choice of term more consequential than it’s been in years. With the world as unpredictable as it is right now, locking in some certainty at home makes more sense than usual.

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The consensus view: 2 years

Most economists and home loan advisers are pointing to the 2-year fixed rate as the sweet spot right now.

In a rising rate environment, driven partly by forces outside our control, the 2-year fixed rate offers a competitive rate today and protection through the expected increases. It won’t lock you in so long that you lose all flexibility. It’s not a permanent commitment, but it’s long enough to ride out what’s coming.

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The 1-year trap

The 1-year fixed rate has long been a favourite in New Zealand. In a falling rate environment it made perfect sense. Fix for a year, renew at a lower rate, repeat. Many borrowers got into this rhythm, and some experts still default to recommending it.

But this environment is different. With rates expected to rise, pushed in part by global forces beyond the Reserve Bank’s control, fixing for just one year means you’ll be back at the negotiating table in 12 months. You could be facing a meaningfully higher rate. What looks like a cheaper rate today could become a costly surprise at renewal.

The 1-year isn’t wrong for everyone, but it deserves more scrutiny than usual. The question isn’t just “what’s the rate today?” It’s “what might it be when I renew?”

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Thinking through each option

There’s no universally right answer, but here’s how each option stacks up in the current environment.

2-year fixed — the consensus pick

A competitive rate with protection through the expected rate rises. Not a permanent commitment, but long enough to ride out what’s coming. Most economists are pointing here for good reason.

1-year fixed — think twice right now

Still right for some situations, but you’re betting that rates won’t climb significantly by renewal time. With global uncertainty high, that’s a riskier assumption than it used to be. Go in with eyes open.

3–5 year fixed

Maximum certainty over a longer horizon, useful if budget predictability matters above all else. Rates are often higher for longer terms and break fees can be significant if your circumstances change mid-term.

Floating

The most flexible option, usually at the most expensive rate. Best suited to a smaller portion of your loan where you want the freedom to make lump-sum repayments without penalty.

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Splitting your loan

You don’t have to put everything on one term. Splitting your home loan is a smart way to get certainty where you need it, while keeping some flexibility. It also means your renewals stagger, so you’re not re-pricing everything at once if rates have moved.

A common approach is to anchor the bulk on a 2-year fix, take a smaller slice on a shorter term or floating, and review from there. For example, on a $600,000 home loan: 50% on a 2-year fixed, 30% on a 1-year fixed, and 20% floating.

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The floating trick

Keeping even 10–20% of your home loan on a floating rate can make a real difference over time. Bonuses, tax refunds, any windfall you can put it straight onto the loan with no break fees and no waiting. Every dollar reduces your principal from that moment forward, cutting the interest you’d otherwise pay for years.

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Already have a home loan? Refinancing can put cash in your pocket

Many banks offer a cash contribution when you bring your home loan across, typically 0.5% to 1% of your loan amount. On a $600,000 home loan, that’s $3,000–$6,000 upfront.

The smart move is to put that cash straight back onto your home loan. Using it to reduce your principal means you’re paying interest on a smaller balance from day one, saving you more than the contribution itself over the life of the loan.

Worth noting: cash contributions usually come with a claw-back period, typically 3–4 years, if you switch again. Factor that into the decision. But for homeowners who are refinancing anyway, it’s a genuine way to get ahead.

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Before you decide

The right term isn’t just about where rates are heading. It’s about your life, your cash flow, and what lets you sleep at night. A few questions worth asking:

How stable is your income?  If it varies month to month, the flexibility to make extra repayments when times are good can matter more than the rate itself.

Any big life changes ahead?  Selling, renovating, or refinancing mid-term can trigger break fees on fixed loans. Factor this into how long you commit.

Can you sleep at night?  Rate anxiety is real. If not knowing what your repayments might be in 12 months bothers you, the certainty of a 2-year is worth the trade-off.

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Let’s find what works for you

Every home loan is different. Our home loan adviser can walk through your situation, whether you’re buying, fixing, or refinancing, and help you structure a loan that fits your life.

Book a chat

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This article is general in nature and does not constitute financial advice. Please consider your personal circumstances and we recommend seeking financial advice from dosh. The information in this article is prepared by dosh., a registered Financial Service Provider (FSP1000801). MCA Investments Limited (Dosh)is a licensed Financial Advice Provider (FAP) providing regulated financial advice on home loans. See our Financial Advice Disclosure.

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