Fixed, Floating or Split? How to Choose When Your Fixed Rate Ends

Guides

When your fixed rate is about to end, your bank will usually send you a list of rates and ask you to pick one. It is tempting to choose the lowest number and move on. But the better question is not which rate is lowest today. It is which structure fits what you expect to happen in your life over the next few years.

There is no rate that is right for everyone. Fixed gives you certainty, floating gives you flexibility, and a split gives you some of each. Here is how each one works and how to choose.

How a fixed rate works

With a fixed rate, your interest rate and repayments are set for a term, commonly anywhere from six months to five years. You know exactly what you will pay, which makes budgeting easier.

The trade-off is flexibility. Most lenders limit how much extra you can repay during a fixed term without a charge, and if you repay the loan, sell, or switch lenders before the term ends, you may pay a break fee. Break fees generally apply when interest rates have fallen since you fixed, because the lender loses the interest it expected to earn.

How a floating rate works

A floating rate can change at any time, up or down, when the lender changes it. Floating rates are usually higher than the shorter fixed rates, but you can make extra repayments, pay the loan off or switch lenders without a break fee.

Revolving credit and offset facilities are usually floating too. They are useful if you want your savings or income working against the loan day to day, but they need discipline to work well.

Splitting your mortgage

You do not have to choose one. A lot of people split their lending into two or three parts, for example one part fixed for one year, one part fixed for two years, and a smaller part floating or on revolving credit.

A split spreads your timing risk, so the whole loan never rolls over on the same day at whatever rates happen to be on offer then. It also gives you somewhere to put a bonus or a tax refund without a break fee.

Questions to ask yourself before you choose

• Might you sell, move or restructure within the next two or three years? If so, a long fixed term could cost you a break fee
• Are you expecting a lump sum, such as a bonus, an inheritance or the sale of another asset, that you would want to put on the mortgage?
• How settled is your income? If it may drop, for parental leave or a career change, certainty can matter more than the lowest rate
• How much would your repayments have to rise before it became a problem?
• Do you want to be mortgage-free sooner? Structure and term often matter more than the rate for that

When your fixed rate is ending

This is the best time to review your whole mortgage, not just pick the next rate. It is a natural point to look at the loan term, how much you are repaying, whether the loan should be split, and whether another lender would offer you something genuinely better.

Switching lenders can be worthwhile, but compare the whole picture. Cash contributions from a new lender often come with conditions, including having to repay some or all of it if you move on within a set period. Weigh that against legal costs and any break fee on your current loan.

You can read more about how we approach refinancing and restructuring, or try our repayment calculator to see how different rates change your repayments.

Why we do not try to predict rates

Nobody reliably knows where interest rates will be in two years, including the banks. So we do not build your structure around a forecast. We build it around your plans, your cashflow and how much certainty you need, so that whichever way rates move, your mortgage still works for you.

If your fixed rate is ending in the next few months, book a free call before you accept the rollover offer. We will tell you plainly whether a change is worth it, and if it is not, we will say so.

Frequently asked questions

Can I switch from fixed to floating part-way through a fixed term?

Usually yes, but if interest rates have fallen since you fixed, the lender will normally charge a break fee. Ask for the fee in writing before you decide.

Is it worth paying a break fee to get a lower rate?

Sometimes. It comes down to whether the interest you save over the new term is more than the fee. We can run that comparison for you.

How far ahead can I choose my next fixed rate?

Many lenders let you choose your new rate in the weeks before your current term ends, and some will let you lock in earlier. It varies by lender, so check rather than waiting for the rollover email.

Should I fix everything for the longest term available?

Not necessarily. Long terms give certainty but reduce flexibility, and break fees can be larger if you need to sell or repay early. Many people spread their lending across terms instead.

This is general information, not personal financial advice. Lending criteria and government settings change, so talk to us about your own situation before you make a decision.