Types of mortgages

There are lots of different types of mortgages with varying interest rates, structures and fees. Getting the right structure at the best rate can save you a lot of money in the long run – so it’s important to understand what will be best for you. Of course we’ll talk you through this, but the more you understand, the better off you are.

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Mortgage interest rates

Fixed interest

A fixed rate means the interest you pay is fixed at a particular % for a specified time – between 6 months and 5 years. At the end of that time, you can choose to refix or go onto a floating rate.

Advantages

You know how much you’ll pay every month for the term.

Rates are competitive between lenders.

Rates are often lower than the floating rate.

Disadvantages

There is always the risk that rates will drop lower than the rate you’re fixed at.

If you want to make extra payments you may be charged a fee.

You may be charged a ‘break fee’ (which can be thousands of dollars) if you break your loan – for example if you decide to sell your property.

Floating rate

A floating rate changes as interest rates change – based on the Official Cash Rate (OCR). Repayments may go up or down.

Advantages

Floating rate loans are more flexible generally allowing you to make extra repayments or changing the loan term.

Disadvantages

Floating rates are generally higher than fixed rates.

If rates go up, you may find repayments become unaffordable.

A combination of fixed and floating

You can split a loan between fixed and floating. This gives you some certainty with the fixed part as well as the flexibility to make extra repayments on the floating part.

You can also choose to split your fixed rate into different length terms. This means you don’t have a sudden increase for all of your repayments if the rates have increased since you fixed.

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Meet our mortgage experts

Our mortgage team of Stuart Pope, Chevaun Marshall and Melanie Riley bring years of professional experience. Stuart has 20 years experience as a mortgage broker based in Nelson, Chevaun is a qualified accountant and Melanie has over 10 years in financial services. They also have personal and professional experience building up property investment portfolios including residential and commercial properties.

Book a FREE initial consultation with one of our experts

Mortgage advisors Stuart, Chevaun and Melanie

“They were really helpful when purchasing our first house. Then went out of their way to make sure we had the best insurance policies, kiwisaver provider and made us a financial plan. It was super easy and I'd recommend them to anyone.”

KQ, Manager, Nelson

Mortgage loan structures

Table loan

Table loans are the most common type of home loan. The maximum term is generally 30 years. You can choose to have the interest rate fixed or floating or a combination.

Advantages

You have regular payments and a set term when the loan will be paid off.

Disadvantages

If you have irregular income, fixed regular payments can be difficult.

Revolving credit

Revolving credit loans work like big overdrafts – you can make payments or withdrawals up to the limit of the loan when it suits. As interest is calculated daily, by keeping the loan as low as possible, you reduce the total interest you’ll pay.

Advantages

By being organised you can pay your loan off faster.

For people with irregular income, a revolving credit loan means they can make repayments when they have money available.

Disadvantages

You need to be disciplined – if you don’t make repayments and continue to spend, you can end up in debt longer.

Offset loan

Normally you pay interest on the full amount of your loan. With an offset loan, any savings accounts and everyday accounts that you link to your loan reduces the amount you pay interest on. For example if you have a $300,000 loan and $25,000 in a savings account, you would only pay interest on $275,000.

Like a revolving credit lona, interest is calculated daily, so the more money you leave in your account, the less interest you will pay.

You can also link the accounts of other family members, for example parents, reducing your repayments even more.

Advantages

You pay less interest and pay off your loan faster. Normally there is no fixed term.

Disadvantages

Any linked savings account don’t earn any interest.

Reducing loan

Uncommon in New Zealand, reducing loans mean payments start high but reduce over time.

Advantages

Early payments include a higher repayment of principal and total interest paid is less overall.

Disadvantages

Higher initial payments make this lona more expensive in the short to medium term. It might be more affordable to make the same repayments under a table loan structure.

Types of mortgages

Mortgage interest rates

Fixed interest

Advantages

Disadvantages

Floating rate

Advantages

Disadvantages

A combination of fixed and floating

Meet our mortgage experts

“They were really helpful when purchasing our first house. Then went out of their way to make sure we had the best insurance policies, kiwisaver provider and made us a financial plan. It was super easy and I'd recommend them to anyone.”

Mortgage loan structures

Table loan

Advantages

Disadvantages

Revolving credit

Advantages

Disadvantages

Offset loan

Advantages

Disadvantages

Reducing loan

Advantages

Disadvantages

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