How do mortgages work in New Zealand?

What is a mortgage?

A mortgage is a loan that is secured against a property. The lender gives you the money to buy the house, and in return registers a legal interest over the property title. If the loan is not repaid, the lender can ultimately sell the property to recover what it is owed.

In everyday New Zealand speech, people use the word mortgage to mean the home loan itself. Strictly, the mortgage is the security over the title and the home loan is the borrowing, but nobody will misunderstand you if you use them interchangeably.

What is the difference between principal and interest?

The principal is the amount you borrowed. Interest is what the lender charges you for the use of that money, worked out as a percentage of the principal that is still outstanding.

Most New Zealand home loans are table loans, which means each repayment is the same size and is split between interest and principal. Because interest is charged on what is still owing, the early repayments on a table loan are mostly interest and only a small slice comes off the principal. As the balance falls, the interest portion shrinks and the principal portion grows, so the loan pays itself down faster near the end than at the start.

This is why an extra payment made early has a larger effect than the same payment made late. Every dollar taken off the principal is a dollar that stops attracting interest for the whole of the remaining term.

What is the term of a mortgage, and how does it change what you pay?

The term is the length of time you have agreed to take to repay the loan in full. In New Zealand a home loan term is commonly up to 30 years, and it is a different thing from a fixed interest rate period, which is usually only a few years.

A longer term makes each repayment smaller, because the same principal is spread over more payments. It also increases the total interest you pay over the life of the loan, because a larger balance sits there attracting interest for more years. A shorter term does the opposite: higher repayments, less total interest.

The size of that difference depends on the loan amount, the term and the interest rate, so it is worth putting your own numbers into a calculator rather than relying on a rule of thumb. Sorted, run by the Retirement Commission, publishes a free mortgage calculator that shows both the repayment and the total interest for any term you enter.

What does a lender look at when you apply?

A lender is checking two separate things: whether you can afford the repayments, and how much it is prepared to lend against the property. Both have to work before a loan is approved.

The affordability side is a legal obligation, not just a preference. Under New Zealand's credit law, a lender must make reasonable inquiries before entering the agreement so it is satisfied you are likely to make the payments without suffering substantial hardship. Since 2025 those lender responsibility rules are overseen by the Financial Markets Authority rather than the Commerce Commission.

The property side is where deposit size and the Reserve Bank's lending rules come in. Banks also have to work within loan-to-value restrictions and debt-to-income restrictions set by the Reserve Bank, and they apply their own credit criteria on top of those.

• Your income, and how stable and provable it is
• Your regular living expenses and existing debts, including credit cards, car finance and student loan repayments
• Your credit history and repayment record
• Your deposit, and the value of the property being used as security
• How the loan sits against the Reserve Bank's loan-to-value and debt-to-income limits, which apply to bank lending

What types of home loan are available in New Zealand?

Several structures are common, and a single loan is often split across more than one of them. The names below describe how the borrowing is arranged, which is a separate question from whether the interest rate is fixed or floating.

• Table loan: equal regular repayments over a set term, weighted towards interest early on and principal later. The most common structure in New Zealand.
• Revolving credit: the loan works like a very large overdraft with a credit limit. Your pay goes in, bills come out, and interest is calculated daily on whatever is owing. It rewards discipline and punishes the lack of it.
• Offset: an everyday or savings account is linked to the loan, and the balance in it is deducted before interest is worked out. Money sitting in the linked account earns no interest of its own, but it reduces the interest charged on the loan.
• Interest-only: you pay the interest and nothing off the principal, so the amount owing does not fall. Repayments are lower during that period and the full amount borrowed still has to be repaid later.
• Reducing, or straight line: you repay a fixed amount of principal each period, so repayments start higher and fall over time. Uncommon in New Zealand.

What is the difference between a bank and a mortgage adviser?

A bank can only offer you its own home loans. A mortgage adviser, also called a mortgage broker, deals with a number of lenders and puts your application to one or more of them, so they can compare criteria and rates across those lenders and negotiate on your behalf.

Both are regulated. Anyone giving regulated financial advice to everyday New Zealanders must hold, or work under, a Financial Advice Provider licence issued by the Financial Markets Authority, follow the Code of Professional Conduct for Financial Advice Services, and belong to an approved dispute resolution scheme you can complain to for free.

There are trade-offs in both directions, and they are worth knowing rather than guessing. Advisers do not cover every lender, and some banks do not deal with advisers at all. Advisers are usually paid a commission by the lender rather than by you, and because different lenders pay different commission rates, it is fair and normal to ask an adviser how they are paid and which lenders they work with. If you deal with a bank directly, disputes can go to the Banking Ombudsman.

Where can you get help with a mortgage decision?

A licensed mortgage adviser or your lender can look at your actual numbers and give you regulated advice about them. That is the point at which general information stops being enough, because the answer depends on your income, your deposit, your other debts and your plans.

Paagaa gives general information only. We do not recommend lenders or loan products, and nothing in these guides is advice about your own situation. Where you need a decision made, Paagaa can introduce you to a licensed adviser or a free financial mentor, and you choose who you speak to.