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Mortgage Glossary NZ — Key Home Loan Terms Explained

Updated

New Zealand’s mortgage market has its own vocabulary. Here’s a plain-English guide to the most common terms you’ll encounter when getting a home loan.

A

Amortisation The process of paying off a loan through regular scheduled payments over time. Each payment covers some interest and some principal. Early in the loan, most of the payment is interest; later, more goes toward principal. See How Home Loans Work.

Assessment rate / stress test rate The interest rate banks use to assess whether you can afford a mortgage — typically 1.5%–2.5% above the current market rate. Banks want to be confident you can still service the loan if rates rise significantly.

ASB, ANZ, BNZ, Westpac, Kiwibank New Zealand’s five major retail banks. All offer residential mortgages.

B

Break fee / Early Repayment Cost (ERC) A charge imposed when you exit a fixed-rate mortgage before the term expires. Calculated based on the interest rate difference between your fixed rate and the current wholesale rate for the remaining term. See Mortgage Break Fees NZ.

Bridging finance Short-term lending used when you’re buying a new property before settling the sale of your existing one. Allows you to bridge the gap between the two settlement dates.

Buy now pay later (BNPL) Services like Afterpay and Laybuy. Banks treat BNPL accounts as credit facilities — even a zero balance reduces your assessed borrowing capacity. Close BNPL accounts before a mortgage application.

C

Carded rate The standard, publicly advertised interest rate a bank offers. In practice, banks often offer discounts below the carded rate to strong borrowers. See How to Get a Better Mortgage Rate.

Cashback A lump-sum payment made by a lender when your mortgage settles, used to attract refinancers. Typically 0.5%–1.0% of the loan amount. Subject to clawback if you leave within a set period. See Cashback Mortgages NZ.

Certificate of Title The legal document proving ownership of a property. Contains the legal description, ownership details, and any registered interests (mortgages, easements, caveats).

Chattels Movable items included in a property sale — e.g., dishwasher, heat pump, curtains, range hood. Listed specifically in the sale and purchase agreement.

Clawback A provision in a cashback mortgage requiring repayment of the cashback if you refinance or repay the mortgage within a set period (typically 2–3 years).

Code of Compliance Certificate (CCC) Issued by the local council confirming that consented building work meets the Building Code. Work with consent but without CCC is a red flag in due diligence.

Conditional offer An offer to purchase with conditions — most commonly finance, building inspection, and LIM. Conditions protect the buyer — if they can’t be satisfied, the buyer can cancel without penalty. See Making an Offer on a House NZ.

Construction loan A loan for building a home. Funds are released in progress payments as each stage of construction is completed. See Construction Loan NZ.

Conveyancing The legal process of transferring property ownership from seller to buyer. Handled by a solicitor.

D

Debt-to-Income ratio (DTI) Your total debt divided by your gross annual income. The RBNZ limits most owner-occupier borrowing to 6× gross income (DTI limit). See LVR Restrictions NZ.

Deposit The portion of the purchase price you pay from savings (not borrowed). Typically 20% for standard NZ mortgages; 5% under the First Home Loan.

Drawdown The release of mortgage funds at settlement (or in stages, for construction loans). “Drawing down the mortgage” means the bank advances the funds.

DTI See Debt-to-Income ratio.

E

Early Repayment Cost (ERC) See Break fee.

Equity The value of your property less any mortgage debt. Equity = Property value − Outstanding mortgage. As you repay principal and/or property value increases, your equity grows.

F

Fixed rate An interest rate locked in for a set term (typically 1–5 years). The rate doesn’t change during the fixed term regardless of market movements. See Fixed Rate Mortgage NZ.

Floating rate An interest rate that fluctuates with market conditions, moving with the OCR and bank funding costs. No break fees but no rate certainty. See Floating Rate Mortgage NZ.

Fortnightly repayments Making mortgage payments every two weeks rather than monthly. Results in 13 “monthly equivalents” per year rather than 12 — saving interest and reducing the loan term. See Payment Frequency NZ.

G

Guarantor A third party (usually a family member) who provides additional security for a mortgage by allowing the lender to place a mortgage over their property. See Guarantor Mortgage NZ.

I

Interest-only mortgage A mortgage where repayments cover only the interest — the principal balance doesn’t reduce. See Interest-Only Mortgage NZ.

IRD (Inland Revenue Department) New Zealand’s tax authority. Relevant to mortgages in the context of income documentation, KiwiSaver, and (for investors) interest deductibility.

K

Kāinga Ora The government housing agency responsible for the First Home Loan scheme and social housing. Previously known as Housing New Zealand.

KiwiSaver New Zealand’s voluntary workplace savings scheme. Members can withdraw their balance (minus $1,000) for a first home purchase after 3 years of membership. See KiwiSaver First Home Withdrawal.

L

LIM report (Land Information Memorandum) A report issued by the local council containing all information the council holds about a property — building consents, rates, hazards, and more. See LIM Report NZ.

LVR (Loan-to-Value Ratio) The ratio of your loan to the property value. LVR = Loan ÷ Property value × 100. At 80% LVR, you have a 20% deposit. The RBNZ uses LVR restrictions to manage bank lending risk. See LVR Restrictions NZ.

M

Mortgage A loan secured against a property. The property serves as collateral — if the borrower can’t repay, the lender can sell the property to recover the debt.

Mortgage broker A licensed financial adviser who helps borrowers compare and apply for mortgages across multiple lenders. Paid by commission from the lender. See Mortgage Broker vs Bank NZ.

O

OCR (Official Cash Rate) The interest rate set by the Reserve Bank of NZ (RBNZ). Banks’ floating mortgage rates move with OCR changes. Fixed rates are driven by wholesale swap rates, which anticipate future OCR movements.

Offset mortgage See Revolving credit.

P

Pre-approval A conditional commitment from a lender confirming how much they’ll lend you, based on your financial situation. Typically valid for 90 days. See Mortgage Pre-Approval NZ.

Principal The amount you borrowed (as distinct from interest). Reducing the principal faster reduces future interest obligations.

Progress payment A drawdown of construction loan funds at each stage of a build — foundation, frame, lock-up, fit-out, completion.

R

RBNZ (Reserve Bank of New Zealand) New Zealand’s central bank. Sets the OCR and regulates LVR and DTI limits on bank lending.

Refinancing Moving your mortgage to a new lender, typically to get a better interest rate or product. See Refinancing Your Mortgage NZ.

Refixing Choosing a new fixed term with your current lender when your existing fixed term expires. See Refixing Your Mortgage NZ.

Revolving credit A mortgage product that functions like a large overdraft — you can deposit and withdraw funds within the limit, and interest is charged daily on the net balance. Also called an offset mortgage. See Revolving Credit Mortgage NZ.

S

Sale and Purchase Agreement (SPA) The formal contract between buyer and seller for a property transaction. Typically uses the REINZ standard form.

Settlement The completion of a property purchase — when money changes hands and ownership transfers. See Settlement Day NZ.

Split mortgage A mortgage structured with different portions on different rate types — e.g., 70% fixed, 30% revolving credit. See Split Mortgage NZ.

T

Table loan New Zealand’s standard mortgage structure — equal repayments over the loan term, with each payment covering interest and principal. As the loan matures, the interest component decreases and the principal component increases.

Term The length of a mortgage — typically 25–30 years in NZ. Distinct from the “fixed term,” which is the period your interest rate is locked.

U

Unconditional offer An offer to purchase with no conditions — legally binding from the moment of acceptance. No ability to withdraw without liability. Required for auction purchases. See Making an Offer on a House NZ.

Further Reading