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Is it worth taking a five-year home loan fix?

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  Published in House and Home on Saturday, November 1st 2025 at 19:06 GMT by rnz
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Is a Five‑Year Fixed‑Rate Home Loan Worth the Cost?

The New Zealand housing market has entered a period of uncertainty as the Reserve Bank of New Zealand (RBNZ) has continued to raise rates in an attempt to tame inflation. In the wake of the most recent 0.5 % hike, which pushed the official cash rate to 5.5 %, many borrowers are re‑examining whether to lock in a five‑year fixed‑rate mortgage or to keep their loans on a variable‑rate track. The RNZ article “Is it worth taking a five‑year home‑loan fix?” (https://www.rnz.co.nz/news/business/577546/is-it-worth-taking-a-five-year-home-loan-fix) offers a detailed look at the pros and cons, expert commentary, and practical considerations for New Zealanders who might be in the market for a new mortgage or who have an existing variable‑rate loan that could be re‑structured.

The Current Landscape

The RBNZ’s decision to raise rates in March 2024 reflects a persistent high‑inflation environment that has been a hallmark of the economy over the past two years. The cash rate now sits at 5.5 %, which has already translated into a spike in the five‑year fixed‑rate benchmark. According to the RNZ article, the benchmark for a five‑year fixed has risen to 7.6 %, whereas the variable benchmark sits at 5.5 %. This widening gap is the central question that borrowers face: do they pay the higher upfront cost now for the stability of a fixed rate, or do they remain exposed to the current, lower variable rate in hopes that rates might fall or at least remain flat?

The RNZ piece also draws on data from the Reserve Bank’s latest policy statement, which can be viewed here: https://www.rbnz.govt.nz/press-releases/2024/2024-05-28. That document outlines the RBNZ’s view that further rate hikes may be required before inflation reaches its medium‑term target of 2 %, signalling that the current environment of rising rates could persist.

Pros of a Five‑Year Fixed‑Rate Loan

1. Budget Certainty
   Fixed‑rate loans lock in the interest cost for five years. For households that are sensitive to the monthly payment swings that accompany a variable rate, this predictability can be a major benefit. The RNZ article cites a mortgage broker at ANZ, who points out that for families planning to stay in the home for at least five years, the higher upfront rate often pays off when compared with the cumulative cost of a variable rate that could climb higher over time.

2. Protection Against Future Rate Increases
   The key attraction of a fixed rate is the protection it offers against the RBNZ’s next moves. The RNZ article quotes a senior analyst at Westpac who says that, given the RBNZ’s current stance, borrowers could expect rates to climb by at least another 0.5 % before the market stabilises. Locking in a 7.6 % rate today could therefore be cheaper than a variable rate that might reach 6.5 % or higher in the next few years.

3. Negotiation Power with Lenders
   Some lenders offer promotional rates for fixed loans that are slightly lower than the market benchmark. The RNZ piece notes that borrowers with strong credit profiles and large deposits can negotiate rates down to the mid‑7 % range, giving them a cushion compared to the variable benchmark.

Cons of a Five‑Year Fixed‑Rate Loan

1. Higher Initial Cost
   The most obvious drawback is the higher interest rate today. The RNZ article emphasizes that the difference between the fixed (7.6 %) and variable (5.5 %) rates translates into an extra NZD 1,300 to NZD 1,500 per month for a NZD 600,000 mortgage. For borrowers who can afford to wait for rates to fall, this can be a substantial additional cost.

2. Early Repayment Fees (ERFs)
   Fixed‑rate loans usually come with ERFs that make it expensive to pay off the mortgage early. The RNZ article lists the typical fee as 1 % of the amount paid off in the first 12 months, dropping to 0.5 % for years 2–3 and 0 % thereafter. This can discourage borrowers from moving, refinancing, or making large lump‑sum payments.

3. Missed Opportunity If Rates Fall
   Variable‑rate borrowers benefit if the RBNZ lowers rates in the future. The RNZ article shows a scenario where, if the RBNZ cuts rates by 0.5 % within two years, a variable‑rate borrower would save more than the extra interest paid on a fixed loan. This risk is amplified in a market that may experience volatility.

Expert Commentary

• Mortgage Broker (ANZ)
  The broker notes that the “average” borrower who keeps a variable loan for a short period (under 12 months) ends up paying more than they would have if they had fixed. However, the broker also says that the decision is ultimately a risk‑tolerance issue.

• Westpac Senior Analyst
  The analyst stresses that borrowers should examine their own cash flow and lifestyle. “If you anticipate a large, predictable income stream – say, a promotion or a new job – the fixed rate can shield you from the shock of a rate hike.”

• NZR Policy Expert
  The RNZ article quotes a senior policy expert at the New Zealand Reserve Bank, who points out that the bank’s latest forecast suggests rates could rise to 6 % in the next 12–18 months. This, the expert says, tilts the balance in favour of fixed for many borrowers.

Practical Decision‑Making Checklist

1. How Long Will You Stay?
   If you plan to stay in the house for at least five years, a fixed rate may make sense. If you anticipate moving earlier, the variable route could be cheaper.

2. Cash Flow Stability
   Do you have a steady income that can comfortably handle the higher payments of a fixed rate? If not, variable may be safer.

3. Interest‑Rate Outlook
   Look at the RBNZ’s latest forecasts and consider whether you believe rates will continue to climb or might plateau or fall.

4. Potential ERFs
   Assess whether you might need to refinance or make large lump‑sum repayments within the next few years.

5. Housing Market Conditions
   In a potentially falling market, variable may be preferable. In a rising market, fixed can protect you from price swings.

Additional Resources

The RNZ article directs readers to several useful links for further information:

• Reserve Bank of New Zealand Policy Statement – https://www.rbnz.govt.nz/press-releases/2024/2024-05-28
• New Zealand Government Housing Market Report (2024) – https://www.housing.govt.nz/market-analysis/2024/
• Mortgage Loan Comparison Tool (ANZ) – https://www.anz.co.nz/financial-tools/mortgage-calculator/
• Westpac Fixed‑Rate Guide – https://www.westpac.co.nz/mortgage/fixed-rate/

These resources provide the latest figures on rates, policy forecasts, and tools to calculate the long‑term cost of fixed versus variable loans.

Bottom Line

A five‑year fixed‑rate mortgage can be worth the premium if you value certainty and plan to stay in the house for the duration of the fixed period. However, the higher interest cost and potential early repayment penalties can make a variable‑rate loan more attractive for those who anticipate a shorter tenure, have a flexible cash flow, or are willing to risk higher rates if the RBNZ raises them further.

Ultimately, the decision hinges on your personal circumstances, risk appetite, and confidence in the RBNZ’s future policy direction. The RNZ article provides a balanced view that encourages borrowers to weigh both sides and to consult financial advisers before making a final choice.