February 9, 2025

The Different Types of Home Loans on Offer in NZ

A home loan is a gateway to owning your dream home. With various types of home loans available in New Zealand, it’s essential to choose the one that best fits your financial situation and goals.

The best way to determine the most suitable home loan type for your needs is to work with a mortgage broker. At Capital Advice, our mortgage brokers will review your circumstances to explore the right loan for you. We will consider how much money you need to borrow, your credit history, and any potential obstacles we may need to work around. This way, we can evaluate all of the available options to identify the most effective home loan type tailored for you.

The 5 Main Types of Home Loans in New Zealand

Table Loans

The most common kind of home loans in New Zealand are known as Table Loans. These loans have a standard repayment structure with terms of up to 25 to 30 years. Loan repayments can be monthly, fortnightly, or weekly, with earlier payments typically paying off mainly interest and later payments paying off mainly the principal amount.

Table loans can have either fixed or floating interest rates:

Fixed Interest

Fixed interest home loans offer a set interest rate that remains unchanged for a specified term, typically ranging from six months to five years. Once this term ends, you can choose to re-fix your interest rate or to change it to a floating interest rate. Fixed interest loans mean that every repayment will be the same, so you can more easily budget for your repayments. Depending on your specific loan terms, you may be charged a penalty if you overpay.

Floating Interest

Floating interest home loans have interest rates that fluctuate, dependent on the broader market. This means that your repayment amounts may fluctuate. Unlike fixed-interest loans, there is no penalty for overpaying on floating interest loans.

Why Choose a Table Loan?

Table loans have regular payments with set payment dates, which means that your payment schedule will be set and predictable. If you choose a fixed rate, then sorting out your monthly payments will be a straightforward process. If you have a floating rate, the exact amount you will pay may fluctuate, but you will still know when to pay each month.

Revolving Credit Loans

Revolving credit loans function similarly to an overdraft, where your income is deposited directly into the account, and bills are automatically paid as they are due. This structure keeps your loan repayments low, and you pay less interest because interest is calculated daily. These home loans also allow for lump-sum repayments and money withdrawal.

Unlike table loans, revolving credit loans do not have a structured repayment schedule, so you can make repayments when you like. This makes revolving credit loans far more suitable for those with irregular income streams.

However, a risk of revolving credit loans is that you must stay organized. There is no set repayment schedule, so you need to keep up with your loan repayments and avoid spending up to the credit limit.

Offset Loans

Offset loans are linked to an existing bank account with the bank from which you took your loan. The sum of your account is then deducted from your loan amount, reducing how much interest you pay.

The more money you have in your accounts, the less you will pay on your loan interest. For instance, if your loan is $350,000 and you have $50,000 in your account, then you will only pay interest on $300,000. You can also link multiple accounts to your offset loan.

Offset loans are favored because you can save money through lowered interest costs, and there is generally no fixed term. Offset loans have floating interest rates, so you can overpay your repayments and pay off your loan faster without penalty charges.

There are two disadvantages to note for offset loans. Generally, offset loans tend to have a higher interest rate. Furthermore, you will not be able to earn interest on your linked savings accounts.

Reducing Loans

Reducing loans, also known as straight-line mortgages, repay the same amount of principal in each repayment. Each repayment reduces the total principal you have to repay, which lowers your interest costs. Reducing loans are relatively rare in New Zealand and typically involve higher initial repayments.

A significant advantage of reducing loans is that due to their higher principal repayments, you will pay less interest overall. Repayments lower over time, making this type of loan a good choice for individuals who expect their income to decrease in the future.

Interest-Only Loans

With an interest-only loan, you will only pay the interest part of your repayment rather than the principal. After your initial interest-only period, you can refinance your loan into a table loan or pay back the principal in full.

Interest-only loans allow you to make smaller payments and have more money for other obligations. This type of home loan is ideal for homeowners and property investors who require that money to improve their properties prior to selling.

Choosing the Best Home Loan Type for You

We welcome you to contact us at Capital Advice if you need professional assistance with home loans and mortgages. Understanding the ins and outs of the various home loan types can be a challenge, but we are here to guide you along your journey. Home loans can be confusing, but they don’t have to be—consider speaking to our mortgage brokers today.

You can reach us on (04) 495 5900 or message us through our site.