The down-low on the different mortgage types

4 MIN READ October 9, 2018
There are quite a few different types of mortgages available in New Zealand and it can be difficult to know which one is the best for you. Choosing the wrong mortgage can mean that you end up paying more than you intended for a longer…

We’ve put together a bit more information on the different types of mortgages available below, but it’s a good idea to come in and have a chat with one of our mortgage advisers to help you figure out which one is best for you and your situation – it’s completely free!

Interest Rate Types

Fixed interest rate
With this type of home loan, the interest rate that you pay is fixed for a period of time – usually anywhere between six months and five years. This type is great if you want to know exactly how much each repayment will be and it’s a chance for you to lock in lower rates. It is difficult to make extra repayments as there are often associated charges for this. You also run the risk of the market interest rate dropping lower than your fixed rate.

Floating interest rate
Floating interest rate loans mean that your repayments will go up and down depending on the market rate. This type of loan allows you more flexibility to make extra payments meaning you can pay your mortgage off earlier, but you can also end up paying a lot if interest rates rise. Floating interest rates are also often higher than fixed rates.

Repayment Structures

Table loan
One of the most common types of mortgages in New Zealand, table loans are usually beneficial if you need the discipline of regular payments and like to know exactly when your mortgage will be paid off. Most of the repayments in the beginning will be paying off the interest, and then the later repayments will be paying off the principal (the amount you actually borrowed).

Revolving credit loan
This type of loan requires quite a bit of discipline! Working like a giant overdraft, revolving credit loans mean that your pay goes straight into the mortgage account. The more you have in the account, the less interest you’ll pay as the interest will only be applicable to the daily balance of your loan.

Confused yet? Basically if you have $50,000 owing on your mortgage and $3,000 is deposited into that account from your wages, when the interest rate is calculated that day, you’ll only pay interest on $47,000 of the loan amount. One of the major differences with this type of mortgage is that you can also take money out up to your set limit, just like an overdraft.

Offset loan
Similar to a revolving credit loan, offset loans are linked to any savings or everyday account you already have, again reducing the amount of interest you pay overall. For example, someone with a $400,000 mortgage and $20,000 in savings would only pay interest on $380,000. You can link as many accounts as you like, however the linked savings accounts don’t earn any interest when they are offsetting a loan.

Reducing loan
Reducing loans (also known as straight line mortgages) mean that you pay the same amount of principal in each repayment but a reducing amount of interest going forward. This will mean that your initial repayments will be higher but over time will lessen as your interest amount reduces. This type of loan isn’t very common in New Zealand.

Interest-only loan
With interest-only loans, our repayments only include the interest, not the principal. This means that the payments are usually lower, but it does mean that we’re not actually paying off the full amount we borrowed. Although you’ll have extra cash for things like renovations, it ultimately costs more to have this type of loan as you’ll still owe the full amount until the interest-only period ends.


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