In this episode, the team explores a question that could reshape how New Zealanders borrow and build wealth - should NZ have 30-year fixed mortgages? While Kiwis are used to short-term mortgage cycles, the US model of long-term fixed rates offers stability and predictability. But would it work here?
How New Zealand Mortgages Work
In New Zealand, homeowners can choose to float their mortgage or fix it for a short period – usually between one and five years. Floating rates can rise or fall at any time, and borrowers can repay without penalty. Fixed rates, on the other hand, provide certainty for a set term but can come with costly break fees if repaid early.
Most Kiwis prefer short-term fixed rates – typically one or two years – which gives the Reserve Bank significant control over inflation and spending. When interest rates dropped during Covid, households suddenly had more disposable income; when rates rose again, that same flexibility quickly reduced household budget.
This system means the Reserve Bank can “manipulate” the economy by influencing spending power, but it also creates volatility for borrowers whose repayments can shift dramatically within a year or two.
What 30-Year Fixed Mortgages Offer
In contrast, the US mortgage system allows borrowers to lock in interest rates for up to 30 years. That means the same repayment every month, no matter what happens with the economy. To most Americans, the New Zealand approach – where your mortgage cost can change overnight – seems almost “lunacy”.
A 30-year fixed mortgage provides certainty and long-term stability. Borrowers know exactly what they’ll pay over the life of the loan, removing the stress of constant repricing. However, there are trade-offs. If rates fall, refinancing can be expensive, with “closing costs” often ranging from $30,000 to $60,000 on a $1 million mortgage.
The US can sustain this model largely due to scale. The American mortgage market exceeds $12 trillion, supported by government-backed entities like Fannie Mae and Freddie Mac, which buy and package mortgages as securities. In New Zealand, our smaller scale makes long-term lending far harder to sustain.
Comparing the Two Systems
Let’s consider a $700,000 mortgage. In New Zealand, repayments average around $3,760 a month over the life of the loan. In the US, a 30-year fixed mortgage at 4% costs roughly $3,350 a month; at 6%, it jumps to $4,200. That means a long-term fixed mortgage becomes more beneficial when rates are 5% or lower.
Still, it’s a trade-off between flexibility and certainty. New Zealand’s system allows borrowers to take advantage of rate drops, while the US model prioritises peace of mind. For many Kiwis, having the ability to refix, refinance, or use offset and revolving credit facilities provides useful flexibility – even if it means accepting more risk.
Certainty vs Flexibility
A 30-year fixed mortgage could reduce financial stress by creating predictable repayments, but it would also reduce the Reserve Bank’s ability to manage inflation through rate changes. In the US, the effects of rate hikes are slower to filter through, while in New Zealand they hit households quickly – often painfully so.
As the Mike and James point out, most people don’t want to think about their mortgage every year; they’d rather “set and forget” while focusing on investing elsewhere. Still, for a smaller economy like New Zealand’s, the ability to react quickly to changing conditions may outweigh the benefits of certainty.
Key Takeaways:
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New Zealand mortgages are typically fixed for short terms (1–5 years), giving flexibility but creating volatility.
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30-year fixed mortgages, common in the US, offer long-term certainty but are harder to sustain in smaller markets.
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Refinancing costs in the US can be high, but stability reduces budgeting stress.
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Economic control: NZ’s short-term model allows the Reserve Bank to manage inflation more effectively.
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Personal preference matters: Flexibility may suit some borrowers, while others value peace of mind.
Next Steps:
If you’re wondering whether you should fix, float, or restructure your loan, the team at Lighthouse Mortgages can help you find the best bank, rate, and term for your situation.
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.
