Most people pick a home loan the way they pick a phone plan — they go with what sounds familiar and hope for the best. But the type of loan you're on can make a bigger difference to your financial position than the rate itself. Here's a plain-English breakdown of the main options.
Fixed Rate
This is the most common structure in New Zealand. You lock in a rate for a set term — typically six months to five years — and your repayments stay the same for that entire period. The predictability is the point. You know exactly what's coming out of your account, which makes budgeting straightforward.
The trade-off is flexibility. When you're on a fixed rate, the bank has priced the loan based on where wholesale rates are sitting. If you want to exit early — or pay significantly more than your minimum — there can be a cost involved. This is called an early repayment charge, and it can be substantial depending on how much rates have moved since you fixed.
Most lenders now allow you to make additional repayments of up to 5% of your loan balance per year without triggering any early repayment charges. So if you have surplus cash and want to chip away at your principal, there's usually room to do that within your fixed term — just know where your limit sits before you make a lump sum payment.
If you want to understand what an early repayment charge might look like for your loan, a good starting point is your banking app. Some banks allow you to simulate a lump sum repayment directly in the app, and it will show you the estimated early repayment charge before you commit to anything. For banks that don't offer this, we can request the figure directly from them on your behalf — it's a straightforward ask and worth knowing before you make any decisions.
Floating Rate
A floating rate moves with the market. When the OCR drops, your rate typically follows. When it rises, so does your payment. You have full flexibility to repay as much as you want, whenever you want, with no penalties.
The catch is uncertainty. Floating rates are almost always higher than short-term fixed rates, and your repayments can change at any time. Most borrowers use floating as a tool rather than a home — keeping a portion floating to absorb lump sum payments or cover short-term flexibility needs, while the bulk of their lending sits fixed.
Offset
An offset account links your savings directly to your mortgage. The money sitting in your offset account is subtracted from your loan balance before interest is calculated. So if you have a $500,000 mortgage and $50,000 in your offset account, you're only paying interest on $450,000.
Your money stays accessible — it's not locked away — but it's working hard in the background every single day. The more you keep in there, the less interest you pay. For people with solid savings habits or irregular income, this structure can be genuinely powerful. I'll cover offset accounts in more depth in a separate post.
Revolving Credit
A revolving credit facility works like a large overdraft secured against your home. Your salary goes in, your expenses go out, and whatever sits in the account at any given moment reduces your interest for that day. There's no fixed repayment schedule — your minimum obligation is just the interest — but the design of the product is meant to encourage you to live within your means and let the balance trend downward over time.
Used well, revolving credit is one of the most efficient structures available. Used poorly, it becomes a very cheap way to spend money you haven't got. Discipline matters more here than with any other loan type. I'll go deeper on this one in its own post — it deserves the space.
So which one is right for you?
Honestly, most people end up on a combination. A portion fixed for certainty, a portion floating or in a revolving facility for flexibility, and sometimes an offset sitting alongside. The right mix depends on your income, your spending patterns, how much surplus cash you carry, and what you're trying to achieve.
This is exactly why structure matters as much as rate. Two borrowers on the same interest rate can have very different outcomes depending on how their lending is set up. Getting that right from the start — and reviewing it every time a fixed term rolls around — is where a good adviser earns their place.
If you're not sure what structure you're currently on or whether it's still the right fit, it's worth a conversation.
Not sure what structure suits you?
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