Blog Article

As we head into 2026, many homeowners and future buyers face an important decision: when your fixed rate term comes up for review, how long should you fix your mortgage for next? There isn’t a one-size-fits-all answer, but understanding the interest rate outlook and your personal goals can help you make a strategic choice.

Interest Rate Outlook for 2026

In November 2025 the Reserve Bank of New Zealand (RBNZ) cut the Official Cash Rate (OCR) to 2.25 per cent. This move signalled the end of the tightening cycle, with most economists and markets pricing in a period of OCR stability in 2026. However, some forecasts suggest potential upward pressure on rates later in the year, including the possibility of rate increases depending on inflation and economic data.

Mortgage interest rates typically follow the OCR and wholesale rate movements, but they can lag or adjust differently depending on bank pricing strategies. Forecasts from several NZ analysts indicate that after potential modest downward movement early in 2026, fixed mortgage rates may plateau or begin to rise through the second half of the year.

This outlook suggests a cautious approach: while we are likely near the bottom of this interest rate cycle, there is limited scope for dramatic rate declines and a possibility of modest increases later in 2026.

As we know now many Banks have now lifted longer-term fixed rates in response to the indicators given by the Reserve Bank.

Short vs Longer Fixed Terms: What to Consider

When your mortgage fix is up for review, you typically can choose a term ranging from six months to five years. Each option has strategic merits:

Shorter Terms (6 – 12 months)

• Flexibility: Suitable if you expect rate movements or personal circumstances (job change, relocation, selling) within a year.
• Potential to Refix at Lower Rates: If the market does see further rate declines early in 2026, shorter terms allow you to capture lower rates sooner.
• Lower Commitment: You avoid locking into a longer contract if you plan to move or refinance.Market commentary suggests that many economists currently see 1 and 2 year terms as providing a balanced blend of current pricing and future flexibility.

Medium Terms (2 – 3 years)

• Balance of Certainty and Opportunity: These terms offer more rate certainty than short fixes while not tying you in as long as five years if conditions change.
• Covering Uncertainty: If the market begins pricing in rate increases later in 2026, medium terms help hedge against rising costs.

Longer Terms (4 – 5 years)

• Security: Longer fixes guarantee your rate through extended periods of potential volatility.
• Peace of Mind: Beneficial if you value budgeting certainty and want to lock in today’s pricing.
• Cost Consideration: Longer terms usually come with a premium. If rates stay flat or fall, you may end up paying relatively more over the long-term than those on shorter fixes.

Key Questions Before You Decide

Here are the questions we recommend clients consider before selecting a term:

• How long do you plan to stay in your home? If you intend to sell or refinance within a few years, shorter terms may suit you better.
• What’s your risk tolerance? If uncertainty around future rates causes stress, longer fix terms can provide peace of mind even if they come at a slight cost.
• What’s your cash flow like now? Longer fixes can offer budgeting certainty, but shorter fixes or floating rates might give flexibility if you expect income changes.
• Are you comfortable with refinancing costs and break fees? If plans change, extended fixes can carry costs to exit early. Factoring these into your decision is important.

Split Fixing: A Strategic Approach

A strategy gaining traction with advisers is splitting your mortgage across different terms. For example, fixing part of your loan for one year, another part for two or three years, and keeping a portion floating. This average rate strategy can help manage risk and offer a degree of flexibility in uncertain markets.

Making the Right Call in 2026

There’s no perfect term length that fits everyone. The best choice blends market expectations, your personal plans, and your financial comfort level. In the current environment a mix of shorter fixed terms with the option to reassess as the year unfolds, given the likelihood rates stay around current levels early in 2026 but could firm later.

The decision on how long to fix your mortgage for is as much about your goals and lifestyle as it is about interest rate forecasts. If you’re nearing a rate reset, speak with us to build a strategy that aligns with both the market outlook and your personal circumstances.

If over the Christmas and New Year period you have a few questions or time to talk be sure to touch base with our team who are always happy to help.

Book a time with one of our team Contact The Mortgage Advice Company