There are many types of home loans in New Zealand, each with its own combination of interest rates, fees and flexibility. All these things affect how much the loan costs you and when it will be paid off. Your interest rate may be fixed, floating or a mix of both. And there are different repayment structures to choose between.
With a fixed rate home loan the interest rate you pay is fixed for a period of six months to five years. At the end of the term, you can choose to re-fix again for a new term or move to a floating rate. Capped rates are a variation where the interest rate can’t rise, but will drop if floating rates drop below the capped rate.
Lenders of floating rate home loans will lift or lower the interest rate as interest rates in the market change. This means your repayments may go up or down, but this type of home loan gives you the greatest flexibility.
You can also split home loans between fixed and floating rates. This lets you make extra repayments without charge on the floating rate portion. Splitting your home loan in New Zealand can give you a balance between the certainty of a fixed rate and the flexibility of a floating rate. How much of your home loan you have in each portion depends on which of these is more important to you.
Revolving credit home loans work like a large overdraft. Your pay goes straight into the account and bills are paid out of the account when they’re due. By keeping the loan as low as you can at any time, you pay less interest because lenders calculate interest daily. You can make lump sum repayments and re-draw money up to your limit. Some revolving credit home loans in New Zealand gradually reduce the credit limit to help you pay off the loan.