Mortgage Glossary

Adjustable Rate Mortgage (ARM)

A mortgage with an interest rate that changes periodically based on market conditions. In NZ, these are often called floating or variable rate mortgages.

Amortisation

The process of paying off a mortgage loan through regular payments over time, which include both principal and interest components.

ANZ

Australia and New Zealand Banking Group, one of the major banks offering home loans in New Zealand.

ASB

Auckland Savings Bank, now operating as ASB Bank, one of New Zealand’s largest banks providing mortgage products.

Break Fee

A charge that may apply if you end a fixed-rate mortgage early in New Zealand. The amount depends
on how interest rates have changed since you fixed your rate. If you need to refinance, pay off
your mortgage, or break your fixed rate for any reason before the term ends, you’ll typically owe a
break fee to your lender. The break fee is calculated to compensate the lender for the loss of
their expected income at the agreed interest rate. For example, if you fixed at 5% and rates have
since dropped to 3%, the lender loses money if you refinance, so they’ll charge a break fee.
Conversely, if rates have risen, your break fee may be minimal or even waived (you might even get a
payment from the lender, though this is rare). Break fees can be substantial—sometimes thousands
of dollars—so understand them before committing to a fixed-rate mortgage. This is why it’s
important to choose a fixed period that matches your plans. If you think you might need to
refinance, discuss break fee structures with your mortgage broker to understand the potential
costs.

Bridge Loan

A temporary loan that helps you finance a new home purchase before your current home is sold.

CCCFA

Credit Contracts and Consumer Finance Act – New Zealand legislation that governs how lenders can provide credit, including mortgages.

Comparison Rate

A rate that helps you compare different home loans by combining the interest rate and most fees and charges into a single percentage figure.

Conditional Approval

Also called pre-approval, this is a lender’s agreement to provide a mortgage subject to certain conditions being met, such as valuation of the property.

Deposit

The amount of money you contribute toward the purchase price of a property. In New Zealand, most
lenders require at least 20% deposit for a home loan, though some will lend with as little as 5-10%
if you pay mortgage insurance. Your deposit is crucial because it reduces the amount you need to
borrow and shows lenders you’re financially committed. A larger deposit means lower monthly
payments, less interest paid over time, and access to better interest rates. For first-home buyers,
government schemes like the HomeStart Grant and KIWISaver can help boost your deposit. The size of
your deposit directly affects your Loan-to-Value Ratio (LVR), which influences your interest rate
and whether you need Lender’s Mortgage Insurance. Saving a larger deposit takes time but pays off
through better loan terms. If you’re struggling to save a large deposit, explore options like
first-home buyer schemes or talk to a mortgage broker about alternative lending options. Use our
how much can you borrow tool to see how different deposit amounts affect your borrowing capacity.

Equity

The portion of your property’s value that you own outright, calculated as the property value minus the mortgage balance.

Fixed Rate Mortgage

A home loan with an interest rate that stays the same for a set period (usually 1-5 years in New
Zealand), providing payment certainty. With a fixed rate mortgage, your monthly repayments remain
constant throughout the fixed period, regardless of whether interest rates in the market rise or
fall. This makes budgeting easier since you know exactly what your payments will be. However, fixed
rates are typically higher than floating rates to compensate lenders for the certainty they’re
offering you. If interest rates drop significantly, you may have to pay a break fee to exit your
fixed rate early and refinance at a lower rate. Many Kiwi borrowers choose fixed rates when they
expect rates to rise, or when they prefer payment certainty. After your fixed period ends, you can
either fix again at the current rate or switch to a floating rate. Learn more about choosing
between fixed vs floating mortgages to understand which option suits your situation.

Floating Rate

A variable interest rate that can change at any time, typically in line with the Official Cash Rate
(OCR) set by the Reserve Bank of New Zealand. With a floating rate mortgage, your interest costs
fluctuate based on market conditions, which means your monthly repayments can increase or decrease
without warning. While floating rates are usually lower than fixed rates initially, they carry more
risk during periods of rising interest rates. Your payments could increase significantly if the
OCR rises, which can impact your budget. Conversely, when rates fall, you benefit from lower
payments immediately. Floating rates are ideal for borrowers who can handle payment variability or
who expect interest rates to fall. Many investors prefer floating rates because they want the
flexibility to refinance or pay down the loan quickly. You can always switch from floating to a
fixed rate if you become concerned about rising rates. Understanding the difference between fixed
and floating rates is crucial for choosing the right mortgage strategy.

HomeStart Grant

A New Zealand government initiative that provides financial assistance to first-home buyers who meet certain criteria.

Interest-Only Mortgage

A loan where you only pay the interest for a set period, with the principal amount remaining
unchanged during that time. Interest-only mortgages are typically offered for 1-5 years, after
which you must switch to principal-and-interest repayments (or refinance). During the interest-only
period, your monthly payments are significantly lower than if you were paying both principal and
interest, which can help cash flow. However, you’re building no equity during the interest-only
period, and when you switch to principal-and-interest, your payments will increase substantially.
Interest-only mortgages are popular with property investors who prioritize cash flow and expect
property appreciation to build equity. Owner-occupiers sometimes use interest-only mortgages
strategically, such as during periods of low income or renovation. After the interest-only period
ends, you’ll have a shorter timeframe to repay the principal, resulting in higher payments. It’s
important to plan for this payment increase and ensure you can afford it. A mortgage broker can
help you structure an interest-only mortgage that aligns with your long-term financial goals.

KIWISaver HomeStart Grant

A New Zealand government initiative that provides financial assistance to first-home buyers who
meet certain criteria. The HomeStart Grant is a one-time payment that doesn’t need to be repaid,
making it valuable for boosting your deposit. Eligibility depends on factors like household income,
property location (urban vs. rural), and whether you’re a first-home buyer. The grant amount
varies but can be up to NZ$10,000 (or more in some regions), which can significantly reduce the
deposit you need to save. To qualify, you must be buying your first home for owner-occupation, not
as an investment. Combined with KIWISaver first-home withdrawal, the HomeStart Grant can help you
achieve a larger deposit faster. Many first-home buyers don’t realize they’re eligible for the
grant, missing out on thousands in free funding. Our first-home buyer guide provides detailed
information about all government schemes available to you, including eligibility requirements and
application processes. (This scheme is not available anymore)

Lender’s Mortgage Insurance (LMI)

Insurance that protects the lender if you default on your loan. In New Zealand, this typically
applies when you have less than 20% deposit. If you can’t save a full 20% deposit, LMI allows you
to borrow with a lower deposit (sometimes as little as 5-10%). However, you pay the insurance
premium, which is added to your mortgage. The insurance cost is typically 2-5% of the loan amount
depending on your LVR and lender. While LMI allows first-home buyers to enter the market sooner, it
increases your total borrowing costs. Some borrowers use strategies like offset accounts or
additional payments to reach 80% LVR faster so they can remove LMI. It’s important to understand
that LMI protects the lender, not you—if you default, the insurance pays the lender’s loss. Before
accepting an LMI requirement, explore first-home buyer grants and schemes that might help you reach
20% deposit. A mortgage broker can help you understand whether LMI is the right option for your
situation.

LVR (Loan-to-Value Ratio)

The percentage of a property’s value that you’re borrowing. For example, if you’re buying a
$500,000 property with a $400,000 mortgage, your LVR is 80%. LVR is one of the most important
factors lenders consider when assessing your mortgage application. Most New Zealand banks require
an LVR of 80% or lower, meaning you need at least a 20% deposit. However, if you have less than 20%
deposit, you’ll typically need to pay Lender’s Mortgage Insurance (LMI) to protect the lender.
Lower LVR (higher deposit) usually results in better interest rates and faster approval. For
example, a 60% LVR (40% deposit) will typically get better rates than an 85% LVR (15% deposit). New
lending rules have made higher LVRs (above 80%) more difficult to obtain, especially for
investors. Understanding your LVR helps you see how much deposit you actually need and what rates
you can expect. If you’re unsure how much you can borrow, use our home loan calculator to estimate
based on your deposit and income.

Mortgagee Sale

When a lender sells a property to recover the outstanding mortgage debt after the borrower has defaulted on payments.

Offset Account

A transaction or savings account linked to your mortgage where the balance reduces the interest
charged on your home loan. An offset account allows you to earn interest on your savings while
simultaneously reducing the interest you pay on your mortgage—essentially getting the benefit of
both. For example, if your mortgage is $400,000 and you have $50,000 in an offset account, you only
pay interest on $350,000 of your mortgage. Offset accounts are particularly valuable for
high-income earners or those with irregular income who can keep substantial cash reserves. You
maintain access to the money in your offset account (unlike additional mortgage payments),
providing a financial safety net. Some mortgages include offset accounts as standard, while others
charge a monthly fee. Over a 20-30 year mortgage, an offset account can save tens of thousands in
interest, making it a powerful financial tool. Ask your lender or mortgage broker if an offset
account is available with your mortgage product.

OCR (Official Cash Rate)

The interest rate set by the Reserve Bank of New Zealand that influences all other interest rates in the economy, including mortgage rates.

Pre-approval

A lender’s indication of how much they may be willing to lend you before you find a property, also
called pre-qualification or conditional approval. Pre-approval means the lender has assessed your
income, credit history, and financial position and given you a preliminary green light for a
mortgage amount. Pre-approval is valuable when property hunting because it shows real estate agents
and sellers that you’re a serious buyer with financing backing. However, pre-approval is
conditional—it’s not guaranteed until all conditions are satisfied, including property valuation
and final income verification. Once you find a property, your pre-approval moves toward formal
approval, where the lender will conduct a full valuation and final checks. Pre-approval typically
lasts 30-90 days, after which you may need to reapply. Getting pre-approval before house hunting
gives you a clear budget and negotiating position. It also saves time during the purchase process
since much of the documentation is already reviewed. Many mortgage brokers offer free pre-approval
assessments to help first-time buyers understand their borrowing capacity.

Principal

The original amount of money borrowed in a mortgage, not including interest or other charges.

Revolving Credit Facility

A flexible home loan that works like a large overdraft, allowing you to withdraw and repay funds as needed.

RBNZ

Reserve Bank of New Zealand – the country’s central bank that sets monetary policy and regulates banks.

Settlement

The final step in the property purchase process where ownership is transferred and the mortgage funds are paid to the seller.

Title

The legal document that proves ownership of a property. In NZ, most titles are now electronic (e-title).

Unconditional Approval

Final mortgage approval given after all conditions (like valuation and insurance) have been satisfied.

Valuation

A professional assessment of a property’s market value, often required by lenders before approving a mortgage.

Westpac

One of the major banks in New Zealand offering mortgage products to home buyers and investors.