Types of mortgages in New Zealand, and how to choose

What is a mortgage? Key terms explained

A mortgage (home loan) is money you borrow from a lender (like a bank) to buy a property. The property then acts as security for the loan, which reduces the lender’s risk of not being able to recover their money. Here are some terms you’ll hear bandied about: 

Fun facts about mortgages in New Zealand

• According to our research, 29% of New Zealanders say they have a mortgage. Of those, 55% owe between $100,000 and $499,000, and 31% more than $500,000. 
• The most popular starting structure for first-home buyers is a table loan, usually split between fixed and floating interest rates. 
• Around 86% of borrowers choose fixed-rate mortgages, with two-year fixed terms accounting for nearly half of all new mortgages. 

Every type of mortgage has its strengths. The right one depends on your income, goals and financial habits. Our free savings calculator and KiwiSaver calculator are super handy tools to help you get a deposit together – then find your best fit below. 

This is the most common type of mortgage. With most lenders, you can choose a term of up to 30 years. Most of your early repayments go to pay off the interest, whereas most of the later payments pay off the principal. You can take out a table loan with a fixed or a floating rate of interest. 

Advantages: 

• Table loans provide the discipline of regular payments and a set date when they’ll be paid off. 
• If you have a fixed interest rate, they offer the certainty of knowing what your payments will be. (If you have a floating interest rate, your repayment amounts can change.) 

Disadvantage: 

• Fixed regular payments can be difficult if you have an irregular income. 

How a table loan works over time

With a table loan, your repayments for each period stay the same, but the split between principal and interest changes. Early on in the loan term, more of each payment ends up paying off interest. As you pay down the balance, more of your money can start paying off the principal. 

Here’s an example of a $400,000 table loan at rate of 6% over 30 years, with monthly repayments of $2399: 

Over 30 years, you’d pay roughly $463,353 in interest on top of the $400,000 principal – more than twice your original loan amount.  

Making even small extra repayments early on can significantly reduce this total. Just bumping up the repayments to $2500, for example, knocks off the mortgage 3 years earlier and saves you $56,623 in interest. Use our mortgage calculator to crunch the numbers almost instantly on your own scenario. 

Revolving credit mortgages

Revolving credit loans work like a giant overdraft. Your pay goes straight into the account and bills are paid out when they’re due. By keeping the loan as low as possible at any given time, you pay less interest because lenders calculate interest daily. 

You can make lump-sum repayments and redraw money up to your limit. Some revolving credit mortgages gradually reduce the credit limit to help you pay off the mortgage. 

Application fees on revolving credit mortgages can be up to $500. There can also be a fee for the day-to-day banking transactions you make through the account.  

Advantages: 

• If you’re well organised, you can pay off your mortgage faster. Revolving credit loans also suit people with an uneven income, as there are no fixed repayments. 
• Putting surplus funds into this account rather than a separate savings account will give bigger interest savings, and also means you avoid the tax on the savings account interest. 

Disadvantage: 

• Revolving credit loans require discipline! It can be tempting to always spend up to the credit limit and stay in debt longer. The key is to use your revolving credit account like a transaction account. The more money that’s in it, the less interest you pay. 

Offset mortgages

An offset mortgage set-up can reduce the amount of interest you pay. Usually, interest is payable on the full amount of a loan, but in this case, you link your loan to any savings or everyday accounts you (and family members) already have, subtract the money in them from the total loan amount, and only pay interest on what’s left. For example, someone with a $400,000 mortgage and $20,000 in savings would only pay interest on $380,000.  

The more cash you keep in your accounts from day to day, the more you’ll save, because interest is calculated daily. Linking as many accounts as possible – whether a partner’s, your parents’ or other family members – means even less interest to pay. 

Advantage: 

• You pay less in interest and pay off your mortgage faster. Typically there’s no fixed term. 

Disadvantage: 

• The linked accounts don’t earn any interest when they offset a loan. That said, interest on debt is typically higher than the interest anyone would earn on savings, so it makes the offset worthwhile. 

Reducing balance (straight-line) mortgages 

With reducing or straight-line loans, you repay a fixed amount of principal with each repayment, plus interest on what’s left. Because the principal reduces steadily, the interest portion reduces over time, so payments start high, but reduce (in a straight line).  

The fees are similar to table loans and you pay less interest overall than a table loan, but the higher early repayments make it less affordable for most people, meaning these types of mortgages are rare in New Zealand.  

Advantages: 

• You pay less interest overall than with a table loan because your early payments include a higher repayment of the principal. 
• These loans can suit borrowers who expect their income to drop, for example, if one partner plans to give up work in a few years’ time. 

Disadvantage: 

• If you can manage higher payments, it would be better to take out a table loan with payments high for the whole term, so you pay less interest. 

Interest-only mortgages 

With interest-only loans, the repayments are lower because rather than paying off the principal, you pay the interest-only part of your repayments – typically for one to five years, before switching to principal-and-interest repayments. Some borrowers take out an interest-only loan for a year or two, then switch to a table loan (in this case, you’d have to pay the normal table loan application fees as well). These types of mortgages are more commonly taken out by investors than owner-occupiers, and strict criteria apply.  

Advantage: 

• Short-term, you’re left with more cash for other things, such as renovations. 

Disadvantage: 

• Ultimately interest-only mortgages cost more. You’ll still owe the full amount you borrowed until the interest-only period ends and you start paying back the loan. 

“[Sorted] has given me the motivation I have needed to increase my savings and save money where I can. Paying more in mortgage equates to less interest.”

– shared with Sorted 

Not sure which suits you?  

It’s complicated! That’s why we’re here to help. We designed our mortgage calculator so everyone can see how different structures could play out, and our guide to shopping for a mortgage covers how to get the best deal, including some essential questions to ask. We’ve also got guides on refinancing, paying it off ASAP and plenty more in our full guide library. 

Mortgage advisers are here to help 

Like this guide, qualified financial advisers who specialise in mortgages can be a trusted source of info. Find qualified pros around the motu through Financial Advice NZ. Our guide to getting advice has more info. 

Mortgage brokers have some advantages, and many don’t cost you a cent. Know, though, that they’re often paid by the lenders, and some banks don’t deal with them. So you might find they present limited options, or that you have to pay if you don’t end up borrowing through a loan they find.  

Great advice on this and other money matters might be right under your nose. Have a kōrero with your whānau, family, friends and workmates about how they get ahead. It could really ease your mind.

Mortgage fees to know about  

If only the interest rate was the only cost of a mortgage! Unfortunately, we’ve got fees to contend with too. Here are the main fees to be aware of and work into your budget: 

• Application/establishment fee. A one-off charge when you set things up (usually up to $500). Banks often waive this for new customers, so it’s definitely worth negotiating on this one. 
• Low equity margin (LEM). An extra charge if you borrow more than 80% of the value of the property (ie, have a deposit that’s less than 20%). It’s paid as an upfront fee or a higher interest rate. 
• Valuation fee. Many lenders require an independent property valuation before approving a loan (typically $500–$1000). 
• Revolving credit account fee. Revolving credit mortgages can charge up to $500 to set up and may also include a small transaction fee for day-to-day use. 
• Break fee. This is charged when you end a fixed-rate mortgage before the term is up, for example, if you sell your home or want to refix at a lower rate. Break fees can be pretty hefty, so check with your lender to find out what it is, and whether you could afford to pay it if your circumstances changed, before you fix. 

The right mortgage will depend on your situation 

No closer to knowing which mortgage you should go for? Narrowing it down is a tricky task, so try not to let this stage in the home-buying process detract from your excitement over the possibility of owning a home. There’s probably no one right answer, but one thing’s for sure: doing your research will help you pick a mortgage that’s achievable.  

Although your circumstances will be unique to you, it could be interesting to consider some typical scenarios.

Freelancers, and self-employed or seasonal workers 

If your income is irregular, a revolving credit mortgage can work well. Because your repayment amounts aren’t fixed, you’ll be able to pay more during high-income periods and less when money’s tight. Use it as your main transaction account, so your balance stays as low as you can get it. 

Looking to get out of debt more quickly 

A good option is a split mortgage, with most of the loan on a fixed rate of interest and a portion of it floating. You’ll be able to make higher extra repayments on the floating portion without getting hit with a break fee.  

Over time, those extra payments can take hundreds of thousands of dollars off your mortgage. Spend a few seconds playing around with our mortgage calculator and you’ll be amazed at the difference extra repayments can make. 

First-home buyers 

Most first-home buyers in New Zealand start with a table loan, often split between a fixed and a small portion of floating interest. The fixed rate of interest is great for repayment certainty while you get into the swing of things, and the floating portion lets you make extra repayments without fees. This is fab if you come into some money you can put towards your mortgage. 

KiwiSaver can be used as part of your deposit for your first whare. Check out our guide to how that works, enjoy this real-life read about how one whānau made it happen for them with help from the Sorted Kāinga Ora programme, find out more about the Kāinga Ora First Home Loan, or if you’ve only got two minutes, watch this short video: 

Mortgage type FAQs

What exactly is a mortgage? How do they work? 

A mortgage (or home loan) is money borrowed to buy a property, with the property acting as security (which reduces the lender’s risk; if something happens and you can’t repay your loan, they could sell the property to recover their funds). Most people repay it over 25–30 years, with interest. Each repayment includes principal (the borrowed amount) and interest (the cost of borrowing). Early on, the majority of your repayments go towards the interest. Over time, as the balance shrinks, more goes to principal.  

What do the words ‘term’, ‘principal’ and ‘interest’ mean when it comes to mortgages? 

The term is how long you have to repay your mortgage (typically 25–30 years). The principal is the amount you borrowed. Interest is what the lender charges you for borrowing their money, calculated as a percentage of your remaining principal. Don’t confuse ‘term’ with ‘fixed term’. That’s how long your interest rate is locked in for (like two or five years). We decode other financial jargon in our glossary and share money kupu in te reo Māori. 

What’s a break fee and when would I pay one? 

A break fee applies when you end a fixed-rate mortgage before the agreed term is up, for example if you sell, refinance or want to refix at a lower rate mid-term. How much it costs you depends on how much of your term is left and how interest rates have moved. It’s vital to always check the break fee in the fine print before you commit to a mortgage. 

Which mortgage type is best for first-home buyers in New Zealand?  

Many first-home buyers go for a mix of fixed and floating rates. You could, for example, fix 70–80% for predictable repayments and budgeting certainty, while keeping 20–30% floating to make extra repayments without penalties. Table loans (which require the same payment each period) are most common because they’re straightforward. There’s no one-size-fits-all answer, though, so talk to your financial adviser, mortgage broker or bank about what suits your income and goals. 

Should I fix or float my mortgage interest right now? 

Fixed rates lock in your interest rate for six months up to five years, giving you predictable repayments but limiting extra payments. Floating rates move with the OCR. They’re less predictable but you can make unlimited extra repayments to save on interest. Most Kiwis split their mortgage between both to get stability and flexibility.  

What you should do depends on your situation, how long you plan to stay in the home and your view on interest rates. As a rule: fixing gives certainty, while floating gives flexibility. Many New Zealanders use a split mortgage to get some of both.  

What happens when you split a mortgage between fixed and floating? 

Splitting gives you both stability and flexibility. You might fix 70% for predictable repayments and keep 30% floating for penalty-free extra repayments. You can even ‘ladder’ your fixed portions across different terms (one year, two years, etc.) so only part comes up for renewal at once. The floating portion moves with interest rates, while extra payments chip directly off the principal, saving you money. 

Can I make extra repayments on a fixed-rate mortgage? 

Yes, but within limits. Most lenders allow 5–20% extra per year without penalties, so if your repayment is $3000 per month, you might manage $3500 without breaking your fixed rate. Larger extra payments typically incur break fees, especially if interest rates have dropped. A split mortgage is a popular way to fix most for stability and keep a portion floating for penalty-free extra repayments. 

How do revolving credit mortgages work? 

Revolving credit works like a giant overdraft on your mortgage. Your income flows into the account, expenses come out, and you’re charged interest on the daily balance. The money sitting in the account reduces the amount you pay interest on, so revolving credit suits disciplined people who actively manage their cash flow as it can help you pay off your mortgage more quickly. 

Can I withdraw money from my revolving credit mortgage? 

Yes, as long as you’re within your credit limit, you can withdraw funds anytime. As you pay down the balance, you create available credit you can access. But beware treating your home like an ATM. Every withdrawal adds to your mortgage balance and interest costs. Some revolving credit mortgages have ‘reducing limits’ that gradually lower over time, helping ensure you actually pay off your home. 

What are the disadvantages of revolving credit home loans? 

Revolving credit requires serious discipline. It’s tempting to spend up to your limit, but that will only mean you stay in debt longer. You’ve also got application fees that can reach $500, plus potential transaction fees, and you’ll miss out on savings interest (though offsetting mortgage interest usually makes this worthwhile). Without fixed repayments, there’s no forcing mechanism to pay down your mortgage. This suits organised, not set-and-forget, types. 

What’s the difference between revolving credit and offset mortgages? 

Revolving credit loans combine your mortgage and banking into one account: income in, expenses out, with no fixed repayments. Revolving credit mortgages suits people who actively manage their daily cash flow. 

Offset mortgages link separate savings accounts (including those of family members) to your home loan, and the savings balance reduces the mortgage amount when calculating interest. You make regular fixed repayments, and the savings stay accessible. Offset mortgages suit people who are set-and-forget savers. 

How much can I save with an offset mortgage? 

The savings depend on how much you keep in your offset account. If you had a $500,000 mortgage at 6% with $50,000 in offset savings, you’d save $3000 each year in interest. It can save tens of thousands and shave years off your loan. 

Are interest-only mortgages still available in New Zealand? 

Yes, but with strict criteria. With these, rather than reducing the principal, you only pay interest each month. Lenders typically limit interest-only periods to one to five years, then you switch to principal-and-interest repayments. These types of loans are mainly for investors now, not owner-occupiers. You’ll need a larger deposit to qualify and it’s harder to get approved. Although they help short-term cash flow, they’re more expensive long-term because you’re paying interest longer without owning more of your home. 

What’s the best mortgage structure if I have an irregular income? 

Revolving credit works well for variable income. There are no fixed repayments, so you pay more during good months and less when you earn less. Or you could keep your mortgage floating for penalty-free extra repayments when cashflow allows. You want to avoid fixing too much, because you need flexibility. A buffer, like an emergency fund or offset account, will help you cover lean months so you can still meet your minimum repayments. 

How can I get the best mortgage deal out there? 

Throw loyalty out the window, negotiate your butt off and only borrow what you need. Get these top tips and then some in how to get the best mortgage deal out there.