Sometimes, it can feel like a gamble to refix your mortgage.

Should you fix long, or is a short-term rate better, and what about floating?

The reality is that the best fixed term for you will depend on a mixture of the current market conditions and your personal financial situation.

Locking in for too long could mean you end up paying more interest if the rates drop. But fixing too short may leave you vulnerable to sudden rate increases.

Here’s what to consider when deciding on the right fixed-term rate for your mortgage.

Should You Fix Short Or Long Term?

As we’ve discussed many times, there are a number of things that can cause interest rates to fluctuate. Inflation, OCR movements, global influences, and economic status are all factors.

Paying attention to these factors can help you to decide the right rate term for you. Here is some general advice on understanding when each term is a good option.

When a Long-Term Fixed Rate Might Be Right

Fixing for a period of 3-5 years can be beneficial when:

• Interest rates are expected to rise: If continuous rate increases are on the cards, fixing for a longer term locks in a lower rate before the hikes occur.
• The Reserve Bank is tightening monetary policy: When inflation is high, the Reserve Bank often raises the OCR (which we saw during the COVID aftermath) which pushes mortgage rates up.
• You prefer certainty and stability: When you lock in a longer term rate, you know exactly what your repayments will be for that fixed term. It’s great for budgeting and you won’t be surprised by an unexpected rate increase.

When a Short-Term Fixed Rate Might Be Right

Choosing a shorter fixed term of 6 months to 2 years can be beneficial when:

• Rates are expected to decrease: If economic conditions suggest interest rates could fall, fixing for a shorter period lets you take advantage of lower rates sooner.
• The Reserve Bank is loosening monetary policy: When inflation is tamed and economic growth slows, the OCR may be reduced to encourage borrowing and investment, this impacts interest rates and often brings them lower.
• You want flexibility: Shorter term rates allow you to capitalise on changes in the market quicker. They are also great if you intend to sell your property to avoid break fees.

Personal Factors To Consider

While market trends and external factors play a role in choosing which rate is best, considering your own financial situation and goals is just as important.

Here is what you should be thinking about before locking in a rate:

• Income Stability: If you have a stable, secure income, you may be comfortable taking a shorter fixed term to potentially benefit from lower rates in the future. But, if your income is less predictable, fixing for a longer term can offer peace of mind with consistent repayments.
• Future Goals: If you are planning to upgrade, downsize, or move in the next few years then a long-term fixed rate might not be ideal. If you plan to sell your home soon, breaking a fixed loan early can come with costly penalties. However, if you plan to stay put for a while, a longer term rate might work in your favour.
• Risk Tolerance: Does the thought of rising interest rates stress you out? Then, a longer fixed term may help you sleep better at night. Yet, if you are comfortable with a bit of risk and want to keep your options open, a shorter term may suit you better.
• Repayment Flexibility: Extra repayments can shorten the term of your loan and reduce the overall interest you pay, but some fixed rate mortgages limit the amount of extra repayments you can make. Consider this when locking in. You may also want to split your loan – fixing part of it for stability while keeping some on a shorter fixed term or a floating rate for extra repayment flexibility.

What Should You Fix For Now?

General advice is great to have, but it’s also really helpful to have specific advice based on exactly what the market is doing here and now. That’s when it can be really helpful to have a mortgage advisor on your side. A skilled professional, like the team here at Mortgage Suite, can look at your situation and the current rates available to make a recommendation on the best solution for you.

Recently, the advice has been not to fix until ‘26. However, sentiment may be starting to shift. The thought is that inflation seems to have been tamed and the Reserve Bank can loosen monetary policy. But, borrowers need to be careful as rates are highly unlikely to drop to the 2-3% region that we saw around COVID-times.

“Nobody can predict the absolute bottom, but you have to keep in mind that a good rate in a normal world is 4% to 5%. People need to be careful not to anchor themselves with thinking that we might get to 2% or 3%, because that’s really not likely to happen.”

At the end of 2024, the advice was to float, or to choose really short terms, like six months to a year. Now, the advice is slightly different. “We’re encouraging people to think about spreading their risk, fixing a chunk of their mortgage for two or three years and keeping the rest on a shorter term. It gives you a bit more flexibility, as well as the benefit of those rates around 5%”

So, is 4.99% as good as you can get right now?

Many lenders are currently offering a two year rate of 4.99%, should you be jumping at it? Well, potentially. Adrian Orr of the Reserve Bank has labelled 4.99% as a great rate that provides certainty. “[It] means that as a borrower, you get the lower interest rate immediately rather than waiting for what happens to the OCR and competitive responses over the next six months.”

However, the Reserve Bank has indicated that they are likely to make to the OCR in the April and May reviews, so rates could still decrease further. With that in mind, the best thing to do is to consult a mortgage advisor before making any decisions.

The team here at Mortgage Suite would be more than happy to work with you to discuss the available options for fixed terms and rates to see which is the most suitable for your personal situation. Get in touch with us now to start the conversation.