Floating Rate Mortgage
A floating rate mortgage is one where the interest rate is not fixed for any set period — it moves in line with market conditions, and in New Zealand, is closely tied to the RBNZ's Official Cash Rate (OCR). When the OCR rises, floating rates tend to follow. When it falls, floating rates generally come down as well, though the timing and degree of the pass-through depends on the lender.
The key attraction of a floating rate is flexibility. There are typically no break fees, meaning you can make additional repayments at any time, pay the loan off early, or switch to a fixed rate whenever you choose — without incurring a penalty. This makes floating rates a common choice for borrowers who are expecting a lump sum (such as a property sale or inheritance) or who want to keep their options wide open.
The trade-off is that floating rates are generally higher than short-term fixed rates, and they expose you to rate movements in both directions. If the OCR rises significantly, your repayments will increase, sometimes with little notice. For borrowers on a tight budget, this unpredictability can be difficult to manage.
A floating rate exposes you directly to OCR movements — if rates rise, your repayments rise with them, potentially at short notice. This makes budgeting less predictable than with a fixed rate. However, the flexibility to make extra repayments without penalty can meaningfully reduce the total interest paid over the life of the loan if you have the income to take advantage of it.
See how this affects your numbers
Run the mortgage calculator to see how floating rate mortgage plays out in your specific situation.