Nov 16, 2019, 12:14:00 PM

Types of home loans in NZ

Topics: NZ Finance, Home loan rates, NZ Mortgage Adviser, Home Loan Advice, Welcome Home Loan, Low Doc Home Loan, Home Loan Application 0

Choosing the right home loan to fit your lifestyle and your needs can be a challenge, especially if you’re new to the property market and you don’t have a good understanding of how home loans are structured. To help you better understand the different types of home loans as well as the pros and cons of each, we’ve created a handy guide that takes you through each option.

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Table Loans
The most common type of home loan is a table loan. Each week, fortnight or month, you’ll repay the same amount unless your interest rate changes.

Each repayment includes a portion of your interest and principal: in the beginning of your loan your repayments will largely be made up of the interest, but over time, your repayments will go towards your principal loan (the initial amount you borrowed).

You can choose either a fixed interest rate or a floating interest rate with a table loan and you can usually select the term of your loan up to 30 years. Regular repayments to your loan can help you stay on track and provide a level of certainty knowing what your repayments will be.

Offset Loans
An offset loan lets you offset or subtract from your interest calculation the total balance in your everyday bank account linked to your mortgage account. What that means is that the total balance in your everyday bank account is subtracted off your mortgage before the interest is calculated, which means you only pay interest on the difference.

This type of mortgage uses a floating or variable interest rate and works best if you regularly have money in a transaction or savings account that you can offset against your mortgage. It can help you pay off your mortgage much faster, but as it uses a variable interest rate, your repayments are not fixed and can change if the interest rate changes.

Reducing Balance Loans
With this type of home loan, your repayments are initially much higher than with other types of home loans, which means you’re paying off more of your principal home loan and effectively reducing the amount of interest you’re paying.

Each week, fortnight or month, you’ll repay the same amount of principal but your interest will be a separate amount: As your principal amount reduces, so too does the amount of interest you’ll pay each time.

A reducing balance loan is a good option if your income is expected to decrease over time and it means you’ll pay less interest over the life of your loan than you would with a table loan. But it is an expensive option initially with much higher repayments so may not be an affordable option for all home buyers.

Revolving Credit Home Loans
A revolving home loan works just like an overdraft. Your income is paid into your mortgage account and you pay your bills and everyday expenses from the account as you need to up to a set credit limit.

Each day, the interest is calculated - using a floating or variable interest rate - on the daily balance of your account. By keeping your loan as low as you can – by spending less and having more in your account – you’ll pay less interest over the life of your loan.

You can usually also make lump-sum repayments and redraw money up to your credit limit. This type of loan is a good option if you’re disciplined about managing your finances because it could mean being mortgage-free much faster. It also suits home buyers whose income may not be regular as there are no fixed repayments.

Your credit limit may reduce each month to help you pay off your loan within the selected term and you do need to have good self-control: if you keep borrowing up to your credit limit each month, you’ll end up paying interest on the full loan amount.

Understanding home loan repayments
Interest rates play a big part in helping you choose the right mortgage. But just as importantly is how your mortgage is structured. An efficiently structured home loan could mean the difference in thousands of dollars of savings and being mortgage-free much faster.

Understanding the different home loan repayment options can help you choose the right type of loan for your situation. When you work with a Mortgage Express adviser, we help take the guesswork out of structuring your home loan by guiding you through the options available so you can make an informed choice.

Talk to our team today about a home loan for a first home or a home loan restructure for your existing mortgage. Simply complete this form and one of our advisers in your area will be in touch.



Disclaimer:

While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

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