Loan structure types explained

Your interest rate is locked in for a fixed period — typically 6 months, 1 year, 2 years, 3 years, or 5 years in New Zealand. Your repayments stay exactly the same for that period, regardless of what happens to interest rates in the market.

When your fixed term expires you can refix. This is where you choose a new rate and term at current market pricing. It is also an opportunity to review your overall structure and compare lenders.

Most NZ lenders allow some extra repayments on top of your minimum while on a fixed rate — the rules vary by lender. Larger lump sum payments during a fixed term may trigger a break fee.

People who want certainty over their repayments and are comfortable committing to a rate for a set period. Most first home buyers fix at least part of their loan.

Your interest rate is not locked in and can move up or down at any time. You can make unlimited extra repayments, pay off large lump sums, or switch to a fixed rate without penalty.

Floating rates are typically higher than fixed rates, which means your ongoing interest cost is usually greater. The trade-off is complete flexibility.

People expecting to receive a lump sum (inheritance, sale of assets, business income), planning to sell or refinance soon, or who want to make aggressive extra repayments without penalty. Many borrowers keep a small portion floating alongside a larger fixed portion.

Rather than putting your entire mortgage into one structure, you split it across two or more portions. Each portion can be on a different rate type, term, or structure. There is a wide range of combinations — some examples include splitting across multiple fixed terms, having a fixed portion alongside a floating portion, or combining fixed with a revolving credit facility.

The split shown below is one example of how a loan might be structured. It is not a recommendation — the right split depends entirely on your income, goals, and circumstances.

Spreading your loan across multiple terms means not everything refixes at once. If rates are high at one refix date, only a portion of your loan is affected. Different portions can serve different purposes — certainty, flexibility, or aggressive repayment.

A split structure is a common choice because it gives you more flexibility to tailor your mortgage to align with your goals. The right combination depends on your situation — talking to an adviser is the best way to work it out.

Your mortgage works like a large overdraft. You have a credit limit and can deposit and withdraw money freely up to that limit. Interest is calculated daily on the outstanding balance — so the more money sitting in the account, the less interest you pay. Many people have their salary paid directly into the revolving credit account.

Every dollar sitting in your revolving credit account reduces the balance on which interest is charged. If your loan balance is $50,000 and you have $30,000 in the account, you only pay interest on $20,000 that day. Over time this can make a meaningful difference to your total interest cost.

Revolving credit is always on a floating rate — the rate moves with the market. It is typically priced slightly higher than standard fixed rates.

Disciplined borrowers with good financial habits who actively manage their day-to-day spending. Often used alongside a fixed portion — for example, putting the majority on fixed and keeping a revolving credit facility for flexibility.

Your savings or transaction account is linked to your mortgage. The balance in your linked account reduces the loan balance on which interest is calculated — without reducing your actual mortgage balance. For example, if you have a $100,000 mortgage and $70,000 sitting in your linked account, you only pay interest on $30,000. The $70,000 stays in your bank account, accessible at any time.

Unlike revolving credit, your savings and mortgage remain as separate accounts. Your savings simply sit in your bank account alongside the mortgage, reducing the interest charged. There is no merging of accounts — your money stays where it is.

Not all lenders offer offset mortgages in New Zealand — it is worth asking when comparing options at application or refix.

Savers who maintain meaningful balances and want those savings to reduce their interest costs without locking money away in a term deposit.

You only pay the interest charged each period — your loan balance stays the same. When the interest-only period ends your loan switches to principal and interest repayments, which will be higher. Lenders have set rules about how long you can remain on an interest-only period, and approval is not guaranteed.

Predominantly property investors, who may prefer to keep repayments lower while the property generates rental income. It is available to owner-occupiers in some circumstances but is much less common. Lenders assess interest-only applications carefully.