Mortgage Basics & Process Overview: How Home Loans Work in NZ
Buying a home in New Zealand? Understanding how mortgages work is key to making smart financial decisions. This guide covers loan types, interest calculations, repayment options, and the step-by-step application process—updated for 2025 NZ lending rules.
1. How Do Mortgages Work in NZ?
A mortgage (home loan) is money borrowed from a bank or lender to buy property, paid back over time with interest.
Key Mortgage Terms
✔ Principal – The amount borrowed.
✔ Interest – The cost of borrowing (charged as a % of the principal).
✔ Loan Term – Usually 20–30 years in NZ.
✔ LVR (Loan-to-Value Ratio) – The % of the property’s value you’re borrowing (e.g., 80% LVR = 20% deposit).
2. Types of Home Loans in NZ
| Loan Type | How It Works | Best For |
|---|---|---|
| Fixed-Rate | Interest rate locked for 1–5 years | Budget certainty |
| Floating (Variable) Rate | Rate changes with market (OCR) | Flexibility (no break fees) |
| Revolving Credit | Works like a giant overdraft | Savers with lump-sum income |
| Interest-Only | Pay only interest (for a set period) | Investors, short-term buyers |
| Offset Mortgage | Savings reduce interest owed | High-income earners with savings |
Which is Best?
First-home buyers → Fixed-rate (budget stability).
Investors → Interest-only or revolving credit.
Flexibility needed? → Floating rate.
3. How Mortgage Interest is Calculated
NZ lenders use daily compounding interest, meaning interest is added daily but charged monthly.
Example Calculation:
Loan: $500,000
Interest Rate: 6.5% p.a. (fixed for 2 years)
Daily Interest: (500,000×6.589.04/day**
Monthly Repayment (30 yrs): ~$3,160 (principal + interest)
💡 Tip: Use an our mortgage calculator to estimate repayments.
4. Repayment Options & Frequencies
| Repayment Frequency | How It Works | Pros |
|---|---|---|
| Monthly | Standard (e.g., $3,000/month) | Easy budgeting |
| Fortnightly | Half monthly amount every 2 weeks | Saves interest (26 payments = 13 months’ worth) |
| Weekly | Smaller, weekly payments | Faster debt reduction |
| Interest-Only | Pay only interest (temporarily) | Lower short-term costs |
Best Strategy?
Fortnightly repayments save thousands in interest over time.
Extra repayments (if allowed) reduce loan term.
5. Step-by-Step Mortgage Application Process
Step 1: Check Your Eligibility
Credit score (no defaults, good repayment history).
Deposit (min. 10–20% for most loans).
Income (stable job, 3–6 months of payslips).
Step 2: Get Pre-Approval
Lasts 3–6 months (shows real estate agents you’re serious).
Requires:
Proof of income (payslips, tax returns).
Bank statements (3–6 months).
KiwiSaver statements (if using for deposit).
Step 3: Find a Property & Make an Offer
Conditional offer (subject to finance, builder’s report).
Unconditional offer (stronger but riskier).
Step 4: Formal Approval
Lender checks property valuation & finalises loan terms.
Step 5: Settlement (2–4 weeks later)
Sign loan documents.
Pay remaining deposit & fees.
Get the keys! 🏡
6. Required Documents for a NZ Mortgage
📌 For Employees:
Last 3–6 months of payslips.
Employment agreement.
IRD tax summaries (MyIR).
📌 For Self-Employed:
2 years of financial statements.
Company tax returns.
Bank statements showing income.
📌 All Applicants:
ID (passport/driver’s licence).
Proof of deposit (savings/KiwiSaver).
List of debts (credit cards, student loans).
7. How Long Does It Take to Get a Mortgage?
Pre-approval: 1–3 days (online) or 1 week (full review).
Unconditional approval: 1–2 weeks after property found.
Settlement: 2–4 weeks after offer accepted.
💡 Tip: Delays happen if documents are missing or credit issues arise.
Final Tips for NZ Borrowers
✔ Compare lenders – Rates/fees vary (ask a mortgage broker!).
✔ Fix part of your loan (split rates for flexibility).
✔ Check break fees before refinancing a fixed loan.
✔ Review your mortgage yearly – Can you get a better deal?
Need Help? EasyMortgage Experts Can Guide You!
We simplify NZ mortgages—from pre-approval to settlement.
📞 Book a free consultation today!
