Debt 101: Fixed, Floating & Revolving Explained

Debt 101: Fixed, Floating & Revolving Explained

When it comes to mortgage lending, understanding the difference between fixed, floating and revolving debt can help you build wealth - faster and smarter. In this blog, we break down how each structure works, when to use them, and the traps to avoid.

Fixed vs Floating: Choosing Certainty or Flexibility

A fixed rate mortgage locks in your interest rate, repayment amount, and loan term for a set period. This gives you certainty, but with limited flexibility – especially when it comes to making lump-sum repayments. Most banks will charge break fees if you try to repay early, and the rules on adjusting repayments vary by provider.

In contrast, a floating rate mortgage offers full flexibility. You can repay as much as you like, whenever you like – ideal for people with bonuses, commissions, or lump sums coming in. But that freedom comes at a cost: the interest rate is usually higher than fixed. If you’re not actively using the flexibility, you’re likely just overpaying.

What About Revolving Credit?

Revolving credit is like a giant overdraft tied to your mortgage. Your income goes in, your expenses come out, and you only pay interest on the daily balance. It’s a tool designed for disciplined borrowers – but that’s where many get tripped up.

In theory, using your salary to reduce daily interest sounds smart. In practice, many Kiwis dip into that credit too often and make no real progress paying it down. You’ll often see people sitting at the same debt balance a year later because it feels like their money – but it’s not. It’s still the bank’s.

Some advisers build complex strategies around revolving credit and credit cards to minimise interest, and while it may work short-term, it often collapses without regular check-ins and strong financial habits.

Offset Accounts: A Cleaner Way to Reduce Interest

An offset account links your savings to your home loan, so you only pay interest on the difference between the two. For example, if you’ve got $80,000 in savings and a $100,000 mortgage, you’re only charged interest on $20,000.

Unlike revolving credit, offset accounts aren’t transactional – you’re not spending from them daily – which makes them easier to manage and often less risky. They’re especially useful for investment properties, where you want to preserve the deductibility of your debt without actually repaying the loan. Not all banks offer them, but where available, they’re a smart alternative.

Mistakes to Avoid With Mortgage Debt

Whether you’re using fixed, floating or revolving, how you manage the loan makes all the difference. Key pitfalls we often see include:

  • Dropping repayments when interest rates fall

  • Overusing interest-only terms with no exit plan

  • Rolling vehicle or renovation costs into a 30-year mortgage

  • Accepting the bank’s “best rate” without advice

  • Putting too much on floating without actually using the flexibility

At the end of the day, there are only two ways to pay off debt faster:

  1. Increase your repayments

  2. Decrease your interest rate

That’s it.

Key Takeaways

  • Fixed loans offer stability but limit flexibility

  • Floating loans are best for borrowers with lumpy income or lump sums

  • Revolving credit sounds smart but requires discipline to work

  • Your repayment behaviour matters more than the loan label

  • Don’t rely solely on the bank—get advice on the best structure for your goals

Next Steps:

If this episode has got you thinking about your mortgage structure and whether it’s helping you achieve your financial goals, speak to the team at Lighthouse Mortgages today.

Book a free consultation.

If you’d like to learn more, check out these other episodes below.

For a no obligation discussion to see how we can help you on the path to wealth, please contact us.

Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.