What Is a Mortgage?

A mortgage is a loan secured against a property. When you borrow money from a bank to buy a home, the property itself becomes the security for that debt. If you stop making repayments, the lender has the legal right to sell the property to recover what's owed.

In New Zealand, mortgages are typically offered by registered banks (ANZ, ASB, BNZ, Westpac, Kiwibank), building societies, and non-bank lenders. Finch Mortgage works with 20+ of these lenders and finds you the best fit.

How Repayments Work

Most mortgages in NZ are structured as principal and interest (P&I) loans. Each repayment includes two components:

  • Interest — the cost of borrowing, calculated on the outstanding balance
  • Principal — the portion that reduces your actual debt

Early in your loan, most of each repayment is interest. Over time, as your balance reduces, a greater proportion goes toward principal. This is called amortisation.

ExampleOn a $500,000 loan at 6.5% over 30 years, your first monthly payment of ~$3,160 includes ~$2,708 interest and only ~$452 principal. By year 25, it flips — mostly principal, much less interest.

Fixed vs Floating Rates

Fixed Rate

Your interest rate is locked for a set period — typically 6 months, 1, 2, 3, or 5 years in NZ. Repayments are predictable. If rates rise, you're protected. If rates fall, you miss out (and may face a break fee to leave early).

Floating (Variable) Rate

Your rate moves with the market. You can make lump-sum repayments anytime without penalty. Generally higher than fixed rates — used strategically as a short-term flexible component.

Split Loans

Many NZ borrowers split their loan — e.g., 80% fixed for stability and 20% floating for flexibility. Finch helps you choose the optimal split based on your situation.

Loan-to-Value Ratio (LVR)

LVR is the ratio of your loan to the property's value. If you're buying a $700,000 home with a $140,000 deposit, your LVR is 80% (borrowing 80% of the value).

The Reserve Bank of NZ (RBNZ) has LVR restrictions that limit how much banks can lend at high LVRs:

  • Owner-occupiers: Most lenders require a minimum 20% deposit for standard loans
  • Investors: Typically require 40% deposit (LVR 60% or below)
  • Low-deposit options: Welcome Home Loans, KiwiSaver, and specialist lenders can help below 20%

Mortgage Terms in NZ

Most NZ mortgages run for 25 or 30 years, though shorter terms are available. A shorter term means higher repayments but much less total interest paid. Key terms to know:

  • Interest rate: Annual cost of borrowing, expressed as a percentage
  • Loan term: Total length of the mortgage (e.g. 30 years)
  • Fixed term: Period your rate is locked (e.g. 2 years)
  • Revert rate: The floating rate you'll move to when your fixed period ends — often much higher
  • Offset account: A savings account linked to your mortgage — the balance offsets the loan, reducing interest

The Mortgage Process in NZ

Here's a simplified overview of the typical NZ mortgage journey:

  1. Assess your finances (income, expenses, savings, credit)
  2. Get a pre-approval from a lender (or via Finch across 20+ lenders)
  3. Find a property and make an offer
  4. Lender orders a registered valuation
  5. Full approval issued (subject to valuation)
  6. Solicitors handle the legal transfer
  7. Settlement — money transfers, you get the keys

How Interest Is Calculated

NZ mortgage interest is typically calculated daily and charged monthly. The formula is:

Daily Interest = Outstanding Balance × (Annual Rate ÷ 365)
Monthly interest = sum of daily interest charges for that month.

This means making extra repayments reduces your balance immediately — reducing the daily interest charged. Even small extra payments each week can shave years off your loan.