Compare the best-rated home loans in New Zealand

What is a home loan or mortgage?

A home loan, or mortgage, is a loan from a bank or other financial institution to buy, build, refinance, or renovate a residential property.

In New Zealand, a home loan typically has a 25-year or 30-year loan term, is repaid via regular payments and accrues interest. Interest is what a lender charges to let you borrow money, written as a percentage of the home loan amount.

What are the different types of home loans in New Zealand?

There are a number of different types of home loans or mortgages available in New Zealand, and the type best-suited to you will depend largely on your personal circumstances and preferences, including why you are taking out a home loan.

Here is an explanation of some of the most common types of home loans you are likely to encounter. A single loan can potentially be a combination of two or three of these, based on its interest rate type, repayment type and loan purpose.

Fixed rate home loans

A fixed rate home loan allows a borrower to lock in an interest rate for a particular period of time, typically from one year up to five years. The interest rate that the borrower pays will remain the same for that amount of time, regardless of any rises or falls in the OCR or the lender’s variable rates.

The home loan rate will then normally revert to variable, unless the lender and borrower agree to roll it over for another fixed term.

Variable rate home loans

A variable home loan interest rate can fluctuate according to the lender’s wishes, although banks are often influenced by economic factors such as the official cash rate set by the Reserve Bank of New Zealand (RBNZ).

The rate can go up or down over time, varying your repayments. These loans generally allow for greater flexibility and more features than fixed rate loans, though their interest rates can sometimes be higher as well.

Split rate home loans

A split home loan refers to when a customer pays a fixed rate on part of their home loan and a variable rate on the rest of it.

Principal and interest home loans

If a loan has principal and interest repayments, this means the borrower has to pay back the loan amount alongside the interest throughout the life of the loan.

Interest-only home loans

An alternative to principal and interest, an interest-only home loan is where the borrower only has to pay back the interest on the loan for the first few years, before the loan reverts to principal and interest repayments.

This may suit some borrowers as it can lead to lower repayments in the short-term, but interest-only loans tend to work out more expensive in the long run.

Owner-occupier home loans

These are home loans where the borrower intends to live in the property rather than renting it out to make money. Interest rates on these mortgages tend to be slightly cheaper than on investor loans.

Owner-occupier loans can be further broken down based on the borrower’s intentions, including whether they are taking out the loan to buy their first home, to buy another home, to build a home on vacant land or to refinance an existing home loan.

These differences can affect the products or rates you can access in some cases. For example, you may be eligible for certain discounts or special offers if you are a first home buyer.

Investor home loans

These are loans for property investors who plan to rent or sell the property they’re buying for a profit rather than living in it.

Both owner-occupier and investor home loans can be fixed, variable or split, and may offer principal and interest or interest-only repayments, depending on the specific lender and loan.

Regardless of which type of home loan you choose, it’s important to bear in mind that a home loan is almost always secured against your property, so if you are unable to continue paying the loan, the lender may ultimately be able to evict you from the property and sell it to settle the debt.

If you have another person act as a guarantor for your home loan, that person may also have to pay back the debt if you can’t meet your repayments. 

How to negotiate a better home loan rate

It could be possible to save money on your mortgage by negotiating for a better rate from your current home lender. And if that doesn't work, have you considered switching your home loan to another lender that's offering a better deal?

You may find that a different lender may offer:

• A lower interest rate
• Lower fees
• More flexible repayment options
• Better features

If you can find a home loan offering better value than your current mortgage you could consider refinancing. After all, why should you be paying more for the same sort of product you could find elsewhere?

Possible costs associated with switching lenders

There may be some refinancing costs to bear in mind, such as mortgage application fees and break fees.

You can be charged a break fee by your lender if you opt to break and repay a fixed-term mortgage before it matures. For example, if you sell your house, or if rates fall sharply and you want to refinance to get a better deal.

Break fees usually only become an issue in a falling interest rate environment. But depending on the size of the mortgage, break fees can cost thousands of dollars. So it's generally worth weighing up the costs of refinancing against the savings you expect to make before making any concrete moves.

Of course, you don’t have to immediately switch to a different provider when looking for a better deal, you could first try negotiating for a lower rate with your current lender. But if they won't give you a discount, it might be time to vote with your wallet.

How much could I save by switching home loans?

How much you could save depends on a range of factors, such as the interest rate and fees. To investigate for yourself, you could use Canstar's Home Loan Comparison Calculator to check the impact of different interest rates on monthly mortgage repayments and total loan costs.

How do you switch lenders?

If you've decided it could be worthwhile to consider switching from your current home loan lender, here are some tips to help:

1. Compare interest rates

Compare mortgage rates and products with Canstar. It could also be worth looking at the loan features on offer from the various lenders to see if they are suited to your needs.

Also check what incentives your lender is offering new customers. Mortgage lenders often reserve their best deals for new customers, but your ongoing loyalty is also important to them.

2. Check what's on offer at your bank

Phone your existing institution and ask them what discount they can offer you. If you know what you can get elsewhere, you're in a position of power. You might find some sharp negotiation with your existing provider saves you the effort of moving.

From a lender's point of view, it's far less expensive to retain an existing customer than it is to find a new one.

3. Weigh up switching to a new lender

If your existing provider won't play ball, it could be time to consider switching your mortgage to a new provider. While changing your bank may seem daunting, it doesn't have to be a difficult process – your new lender should be able to do most of the legwork for you.

4. Check for fees and extra costs

Check with lenders about any application fees, break fees or other costs, and factor them into your calculations before you switch.

If you have less than 20% equity, you might also have to pay a low equity premium, which could make the cost of switching significantly less affordable.

Also remember to check the term of your new loan. The typical home loan term in New Zealand is 25 to 30 years. But if you've already paid off three years of a 25-year loan, your new mortgage term should reflect this.

For if you revert to another 25-year term, while your monthly repayments might reduce, you'll end up paying extra interest.

5. Calculate your break-even point

While a lower interest rate might mean you could save money on monthly repayments, the costs to refinance could actually mean it may take a while for any real savings to flow through.

One way to calculate when you'll start to make savings is to add up the costs of refinancing and to divide that figure by the monthly savings you'd make on repayments.

As a hypothetical example, if it costs you $1000 to switch to a new lender, but you expect to save $50 per month in repayments, it would take 20 months to break even.

Remember, even if you refinance at a lower rate, it could be worthwhile keeping your repayment amounts the same, to save money in interest costs over loan term.

How do mortgage offset accounts work?

An offset account is a transaction account that is linked to your home loan. The account's balance is offset daily against your home loan balance. As a result, you’re only charged interest on the difference between the total loan balance and the amount offset.

For example, if you have a home loan of $400,000, and $50,000 in a linked offset account, you'll only pay interest on $450,000 of your balance.

Some mortgage lenders only permit you to link one offset account, while others allow you to offset multiple accounts against your mortgage.

Pros and cons of an offset account

Pros:

• Pay less interest on your home loan. By having money in your offset account, you can cut years from your home loan and pay thousands less in interest. You don’t necessarily need a huge amount of spare savings, either, for every cent in your account saves interest off your loan.
• Get your savings to work harder for you. Home loan interest rates are typically higher than the interest rates on savings account. Therefore, your savings can work harder for you in an offset account, compared to a regular savings account.
• Keep extra funds at hand. An offset account can be an easy way to keep excess funds at hand, while still minimising interest payments on your mortgage. If your financial situation changes, you can easily access the money offsetting your mortgage.

Cons

• Offset accounts are usually only offered on variable rate home loans, which attract a higher rate of interest. Therefore you'll need to offset at least the additional interest charges to make savings.
• Some mortgage lenders charge fees on their offset accounts.

As the financial benefits of a mortgage offset account depend on a number of factors, it's important to weigh up your individual circumstances to determine if an offset account is right for you.

Does an offset account reduce monthly repayments?

When you have an offset account, your monthly repayments typically stay the same, even though you may be charged less in interest.

This affords you the opportunity to repay your loan faster. As the offset account helps reduce the amount of interest being added to your loan, more money goes towards paying off the principal (your loan amount).

How to use an offset account

The more money you put into an offset account, the more interest you will typically save on your loan. To help maximise the balance of your offset account, one option is to get your salary deposited directly into your offset account and then use the account as an everyday transaction account.

Because your home loan is offset on a daily basis, the longer you keep your money in an offset account, the more interest you can save.

If you have a credit card and are disciplined with your spending and repayments (i.e. you repay the card balance in full each month), another option could be to use your credit card to pay for your everyday expenses.

This would leave more of your salary in your offset account for longer each month, thus saving more interest on your home loan. However, you would need to make sure you repay your credit card in full and on time each month.

Also, remember that you don't have to put your entire home loan on a variable rate to use an offset account. By splitting your loan, you could set most of your mortgage at a lower fixed rate, and keep just a small proportion on a variable rate with an offset account. This could help further reduce your overall interest costs.

How to choose an offset account

When choosing a home loan with an offset account, consider features such as:

• An account where 100% of your total balance is offset against your loan
• No minimum balance, so every cent in your offset account is working for your loan
• No maximum balance limit, so you can keep growing your savings and paying less in interest on your home loan
• Low or no fees on the offset account
• The ability to use your offset account for the transaction types you need, such as debit card, ATMs, eftpos, direct debit and in-branch
• The ability to link multiple accounts as offset accounts to your loan

What’s the difference between an offset and a redraw facility?

Offset accounts and redraw facilities are both common home loan features. However, there are some differences, and it's important to consider which would work best for you.

A redraw facility is a feature available on some floating-rate loans. It allows you to withdraw money that you’ve already contributed to your home loan. The balance of the redraw facility is whatever extra payments you have made towards repaying your loan.

What is a line of credit home loan?

A line of credit home loan (sometimes called a revolving mortgage) is an approved credit limit secured against the equity in your property. It has a variable (floating) interest rate and you pay interest on any amount you owe.

You can draw down (take out money) or make repayments as frequently as you like, and interest is calculated on a daily basis. Generally, a line of credit facility is set up for a period of between one to five years – this may automatically renew at the end of the period, or you may need to request a renewal. 

How does a line of credit home loan work?

Essentially, a line of credit home loan functions in a similar way to a credit card. You have a pre-approved credit limit and you can borrow as much of this sum as you want, with interest paid on the outstanding balance. In general, having a good credit history can help you qualify for a lower interest rate.  

How much can you borrow?

The amount you'll be able to borrow will depend on your personal finances and your financial institution's lending criteria. However, it will be largely dependent on the equity you have in your home.

For example, let's say you originally borrow $300,000 from a bank to buy a home, with a deposit of $50,000 – giving you equity in your home of $50,000. Ten years later, your debt is down to $170,000 and your property has increased in value to $450,000. This means that the equity in your home will have risen to $280,000. You then may be able to take out a loan against a proportion of your $280,000 equity.

Line of credit home loans: the pros 

• Compared to increasing the size of your fixed-term mortgage, a line of credit home loan gives you the flexibility to pay off the loan amount faster, and without penalty
• Allows you to borrow money against the equity in your home at rates often lower than those attached to personal loans or credit cards
• Gives you the ability to reduce your interest payments by parking sums of money you're not using at any time – for example, money set aside to pay provisional tax commitments – in your line of credit account
• Can be suitable for those with irregular income streams, such as the self-employed, or investors who regularly need access to large sums
• The flexibility of accessing/paying back cash as required is useful when paying for work such as home renovations, when timeframes and costs are not precise
• Although not a recommended practice in the long term, you need only to pay off the interest on the loan

Line of credit home loans: the cons 

• Floating interest rates are generally higher than those associated with fixed-rate mortgages
• Requires discipline and commitment on the part of the borrower to ensure the loan is paid off as early as possible
• Bank fees, withdrawals, deposits and other charges can apply to the line of credit account
• Your home is at risk if you fail to make repayments on the loan

Fixed vs floating mortgage rates

Over the 12 months to the end of May 2026, approximately 25% of all new mortgage lending was on floating rates. Given that floating rates are usually higher than fixed rates, and fluctuate with changes to the OCR, why choose a variable rate over a lower fixed term?

Fixed rates: pros & cons

Possible benefits of a fixed-rate home loan

• Predictable repayments until the end of the fixed term
• Currently, one- to three-year fixed rates are competitively priced compared to variable rates
• If the OCR rises, your repayments stay the same

Possible disadvantages of a fixed-rate home loan

• If rates fall during your fixed-rate period, you could find yourself paying higher than market rates
• Conversely, if rates increase during your loan period, you could find yourself facing higher rates once your fixed-term expires
• Break fees on fixed-rate home loans can be hefty during periods of falling rates

Floating rates: pros & cons

Possible benefits of a floating-rate home loan

• Sticking to a floating-rate home loan gives you the ability to capitalise on any downward rate movements
• If rates go down, so do your repayments, allowing you to pay more into your loan. This could save you money in the long term
• It's flexible: if you want to refinance, move house or terminate your home loan contract for any reason, you can without break fees

Possible disadvantages of a floating-rate home loan

• If rates go up you face higher repayments. This might be a challenge if you are on a tight budget
• If the OCR increases rapidly, you may find that it's too late to lock in a favourable fixed-rate home loan

What is an interest-only mortgage?

If you have an interest-only mortgage, you're only required to make payments for the interest on the loan. Unlike a principal and interest loan, you don't have to pay down the main loan sum.

Typically, interest-only loans have a maximum period of five years, after which the loan reverts to normal principal and interest repayments.

Interest-only mortgages are not designed for every type of borrower. They're not ideal for standard home buyers who just want smaller monthly repayments because, over the life of the loan, they attract higher interest repayments.

Instead, interest-only loans can be useful for:

• Property investors who can claim interest as a tax deduction
• Buyers who only plan owning a property for a few years before selling it
• Financially stressed mortgage holders who need a short-term reduction in their mortgage costs

Importantly, it's worth noting that an interest-only mortgage is a lot harder to obtain then a regular mortgage.

Benefits of an interest-only mortgage 

• Lower monthly payments
• Potential tax benefits
• Frees up cash to invest elsewhere
• Can offer a short-term respite from mortgage repayment costs

Disadvantages of an interest-only mortgages

• Tighter loan restrictions
• Not available from every lender
• No reduction in loan principal, which has to be repaid at some point
• Time-limit on interest-only period
• Can lead to increased negative equity if property prices drops

What is the OCR?

The Official Cash Rate (OCR) is the rate that the RBNZ charges banks to borrow money from it. This cost of borrowing affects the interest rates that banks and lenders then pass on to their own customers for their loans.

The RBNZ's Monetary Policy Committee (MPC) meets seven times a year. At each of the meetings the MPC discusses monetary policy, including the OCR, and can do one of three things:

• Lower the OCR, with a view to stimulating borrowing and spending in the economy
• Increase the OCR, to try to rein in spending and borrowing to keep inflation in check
• Leave the OCR unchanged – steady as she goes!

How does the ORC affect banks' interest rates?

While the OCR is important, and does influence banks and lenders' funding costs and how they set their interest rates, it's not the only factor affecting consumer interest rates. There are three main factors that influence mortgage interest rates:

• The banks' funding costs: banks borrow much of the money they lend to their customers. The money comes from overseas, from NZ savers and the domestic wholesale market. The bank, in turn, has to pay to borrow these funds, in the form of interest and other charges. If these funding costs increase, independent of any OCR announcement, banks will increase their rates to protect their margins.
• Competition from other banks: banks and lenders exist in a competitive marketplace and have to compete for business. This competition can influence the movement of interest rates. Many banks offer cut-price special rates to borrowers, and bonus interest rates on savings accounts, to attract new customers.
• Default risks: banks and lenders are concerned with risk. Before lending money, a financial institution will assess a borrower's risk of defaulting on the loan. Usually, the higher the risk, the higher the interest rate the borrower will be charged. For example, somebody with a poor credit score is likely to be charged a higher interest rate than somebody with a great credit score. Likewise, leveraged property investors will likely pay more for a mortgage than an owner-occupier with a substantial deposit.

Home auctions vs private treaty sales

There are three main styles of property sales in New Zealand:

• Private treaty (or private sale): interested parties make an offer and negotiate a price and purchase conditions with the seller, usually through an estate agent
• Auction: interested parties bid against each other at an auction sale
• Tender and expressions of interest: offers are submitted individually. Prospective buyers don't know the other offers, and the home goes to the highest offer

Of the three sales methods, the first two are the most common.

Private treaty sale

A private treaty sale, or private sale, is when a property is advertised as being on the market, and prospective buyers make their offers directly to either the seller or their agent. Essentially, this method of selling gives both the seller and buyer the most flexibility to negotiate price and purchase conditions. The property will be listed with a price or price range, and no set deadline on the expiry of the sale.

A real estate agent may potentially help to facilitate a sale or purchase in several ways, such as:

• Giving the seller an idea of current market conditions
• Advising the seller on when to sell their property, and at what price
• Facilitating any marketing/advertising of the property, such as dressing the property for sale
• Letting the seller know when an offer has been made, negotiating a price, then letting the prospective buyer know if the offer has been accepted

However, a private treaty sale can be made without the help of an agent. This can be a difficult process if you haven’t sold a home before, or you don't have extensive property and negotiating experience. Private sellers still require a lawyer to assist with the legalities.

Pros of a private sale

• No guessing-games: a fixed price can make it easier for buyers as they don’t have to guess your desired sale price
• Time: private sales can work well as they provide you with more time to consider offers from prospective buyers
• Flexibility: the price can be adjusted throughout the marketing stage, and sellers can also take their time in receiving and selecting offers
• Less intimidating than an auction: the pressure and public nature of an auction doesn’t appeal to everyone, be it the buyer or seller
• Costs: a private sale can be less expensive than holding an auction, as you don't have to pay for an auctioneer, or if you’re managing the sale yourself privately, you'll save on a real estate agent’s commission fees
• Privacy: as the name suggests, you can keep your business to yourself

Cons of a private sale

• Sale time: with no exact end date, and potentially multiple negotiations taking place, the entire sale process can sometimes be more drawn out
• Cooling-off period: the majority of private sales are subject to a cooling-off period, which means the buyer could potentially change their mind during this time.
• Lack of urgency: nothing brings urgency to buying a house like an auction does for buyers. Buyers compete against each other to drive prices up in an auction. During negotiations for a private sale, often buyers are aiming to negotiate prices down. No deadline can also mean interested buyers are not compelled to act as quickly as they would at an auction
• Risk of misjudging the worth of your property: this can potentially be mitigated by stating a minimum sale price

Sale by auction

Property sales by auction are common in New Zealand. Potential buyers register their interest before the auction day and then publicly gather to bid on the property. When the auctioneer’s hammer falls, the highest bidder is committed to sign a contract on the day.

Most sellers will have set a reserve price, which is the lowest price they're willing to accept for the property. If no bids are made at or over the reserve price, the property may be passed in. Interested buyers may have an opportunity to negotiate a sale with the owner if this happens.

Properties sold by auction have no cooling-off period unlike private treaty sales, and you can’t negotiate the conditions of sale.

Pros of a sale by auction

• Potentially more buyers in the room: auctions attract a lot of potential buyers as people aren't put off by an asking price
• Urgency: the auction date creates a sense of urgency that stops buyers from delaying their decision. There's also increased competition from other buyers
• You're protected by a reserve price: this means your house won't sell unless the bidding reaches a pre-agreed amount
• Includes an unconditional contract for sale: this includes a set settlement date

Cons of a sale by auction

• Costs: you can incur additional costs like an auctioneer or an expensive marketing campaign. You're responsible for covering these costs even if you don't make a sale on your property
• Can rule out potential buyers: given that the highest bidder must sign a contract on the day, people who aren't able to secure finance before the auction day may be forced to step out. This can potentially reduce the number of bidders come auction day and limit the sale price

What is a loan-to-value ratio (LVR)?

An LVR refers to the size of a loan compared to the value of the property it's used to purchase: what percentage of a property’s purchase price is covered by the loan.

For example, if the home you want to buy is worth $1 million, and you have a $300,000 deposit, then you’ll require a $700,000 loan to purchase the property. This means 30% is coming from you, and 70% from the bank: an LVR of 70%.

Generally, banks are happy to lend up to 80% of a home’s value. A 20%-plus deposit will also, usually, secure you a more favourable interest rate on your mortgage.

How do LVRs affect getting a mortgage?

Banks have to adhere to strict limits on the number of home loans they can issue to borrowers with low deposits, as these mortgages are considered riskier.

The LVR restrictions are set by the RBNZ, which has recently increased the amount of low-deposit lending banks are able to make.

At the end of last year, the RBNZ increased the amount of low deposit lending banks are able to make:

• 25% of owner-occupier lending to borrowers with an LVR greater than 80% (up from 20%)
• 10% of investor lending to borrowers with an LVR greater than 70% (up from 5%)

Potentially, these changes will make it easier for those with smaller deposits, such as first home buyers and those on low incomes, to buy property.

Are there any exemptions to the LVRs?

There are a few exemptions to the LVRs, including borrowing money to fix a leaky home, which is an expensive business. But the two most relevant to house-hunters with low deposits are:

• Loans to buy new homes: if you buy at an early stage of construction, or buy from a developer within six months of completion, the LVR rules will not apply to your loan application. Currently, many smaller townhouses and apartments are being built. These provide a great opportunity for Kiwis with smaller deposits to purchase first homes.
• First Home Loans: Kāinga Ora's First Home Loans are designed specifically for those with deposits as low as 5%.

What are debt-to-income ratios?

Debt-to-income (DTI) ratio restrictions are limits on mortgage borrowing that are set by the RBNZ. Borrowing over six times your income, gross tax but net any debts, is considered to be a high-DTI mortgage.

What are the current DTIs?

Banks in New Zealand must adhere to the following restrictions for all new owner-occupier and investor lending:

• 20% of residential loans to owner-occupiers with a DTI greater than six
• 20% of residential loans to investors with a DTI greater than seven

The DTIs sit alongside the LVRs, which limit lending to people with low deposits. Their purpose is to restrict borrowers' access to huge, unsustainable, mortgages, and to ensure the housing market is less prone to booms and busts, which puts the nation's economic stability at risk.

How much can I borrow to buy a house?

If you're planning to buying a first home, the amount you'll be able to borrow will be reliant on a wide range of factors. But the two most important are:

• Your income
• The size of your deposit

However, banks and other mortgage lenders will also take into consideration your other liabilities and wider financial history, including:

• Credit card limits and balances
• Everyday living expenses
• Student debt and other personal loans
• The number of children and other dependents reliant on you
• Your savings history

Even if you earn a great wage, if you've no proven track record of saving or financial responsibility, your borrowing power will take a hit.

Banks are also bound by financial legislation that promotes responsible lending, these include loan-to-value ratios (LVR) and debt-to-income (DTI) restrictions.

However, these restrictions only apply to banks and don't cover Kāinga Ora loans or mortgages for new builds.

Individual mortgage lenders also apply their own stress tests to ensure that borrowers can cope with any possible repayment increases due to interest-rate rises.

So how much can I borrow?

As outlined above, there's no set formula to determine exactly how much a person can borrow. But, as a general rule, you can borrow up to 80% of a property's price. And if your finances are good, you may even be able to borrow up to 90%.

However, another general rule is that you shouldn't pay more than around a third of your pre-tax household income on your mortgage, otherwise you'll endure mortgage stress.

How to get a home loan for a new build

Arranging finance for a new build is quite different from applying for a mortgage for the purchase of an existing home.

Most people apply for finance to purchase a section and to build a new home at the same time. This requires two finance offers, one for each stage of the project, which means a range of different conditions need to be met. The paperwork needed can include:

• A registered valuation of the section and completed build
• A copy of the title of the section
• The build contract and plans
• Consent details
• Builders' risk insurance

What is a registered valuation?

All banks require a registered valuation prior to the build starting. This covers the completed value based on the build contract and specifications. While some banks require further valuations, which come with added costs during the build, others don't, which can save you money.

Some banks calculate their LVRs using the registered valuation, instead of using the cost to complete. This is a clearer way to assess the market value of your proposed build and, against a backdrop of rising prices, can possibly save you money on lenders' mortgage insurance.

What loan buffer do I need?

Home loan lenders will add up to a 15% buffer above the fixed price of your build contract to allow for budget overruns. For example, if your fixed price contract is $450,000 then it could actually be assessed at $517,500 (15% more).

This buffer can affect the level of borrowing you're able to achieve, and might adversely affect your chances of approval.

As individual banks and lenders have different rules around new builds, arranging the best mortgage to suit your building plans and budget can be time consuming. As a result, it's important to establish good lines of communication between your choice of builder and finance provider.

How does the new build loan work?

Usually, a construction loan for a new build is drawn down progressively. This means that you draw down the loan (increase your borrowing) in stages, as you pay for the progress of your new build. For example, as each stage of your home is completed, the builder will invoice you for the work done. You then submit that invoice to your lender for payment.

A construction loan usual has a variable interest rate, until the last payment on the house is made, when you renegotiate with your lender to switch to a standard mortgage.

Variable interest rates are usually higher than fixed rates. So it's important to shop around for the best deal. Over the course of an extended build period, you could save a considerable amount in interest.

How your credit score can impact your ability to get a home loan

Your credit score can be an important factor lenders take into consideration when evaluating your home loan application.

How does a lender figure out my credit score?

A lender will calculate your credit score based on several factors, including the amount of credit you have accessed in your life, whom you accessed it from, and how good you were at paying it back. Lenders use different algorithms to calculate your credit score, some enlist the services of credit reporting agencies, others make the calculations in house.

While there are different ways of calculating credit scores and overall creditworthiness, broadly, lenders take into account a similar list of factors, including:

• Your current financial situation, including your current income, savings and spending habits
• Your borrowing history: the number of times you’ve applied for credit; how much credit you applied for; your repayment habits
• Your employment history
• Your address history

This means if you’re gearing up to start comparing home loans, you should be conscious of the things listed above, and whether any of them might appear on your credit report as less than stellar.

Can I get a home loan with a poor credit score?

If your credit score isn’t as good as you’d like it to be, it doesn’t necessarily mean that you can’t get a home loan. However, you may only be eligible for certain home loans, for example those with higher interest rates and fewer features.

There are lenders who specialise in home loan products designed for people with less-than-perfect credit scores. Their products may not be as attractive as some other home loans, but they could be a starting point worth consideration.

If you exercise financial diligence, after a few years of being smart with your money and making repayments on time, your credit score may improve to a point when you can refinance your home loan with a more attractive interest rate.

My home loan application got denied – now what?

If your home loan application is unsuccessful, it doesn't mean you are out of options. That being said, it may not be the best idea to immediately apply for a different home loan from another lender. One of the things that can affect your credit score is how many times you've recently applied for any sort of credit or loan, along with whether you were successful or not.

This means your credit score may actually be lower after an application for a home loan is denied. In this instance, you may want to consider working on your credit score, by exercising financial prudence for a few months. While improving your credit score may be easier said than done, it’s not impossible.

Could deferring my home loan or missing a repayment affect my credit score?

If you apply for a home loan deferral, as long as you aren't in arrears, your mortgage holiday should not negatively affect your credit rating. But remember, during your holiday period your loan will still accrue interest, which in turn will then compound. So after the loan period has finished, you’ll face a larger sum to pay off.

In normal circumstances, a default on credit can occur if you fail to pay an expected debt, like a credit card repayment or loan. If your debts remain unpaid, your provider is likely to get in touch with a credit rating agency to report the default, which can then show up on your credit report.

The most important thing to remember if you are in mortgage stress is to talk to your lender as soon as possible. If you tell your lender you're in financial hardship and having trouble meeting your monthly repayments, they are obligated by law to assist you in setting up an affordable repayment plan.

How can I improve my credit score?

Improving your credit score is not something you can do overnight. But, in the short term, you can assess your financial situation and put together a plan to help guide you towards a better credit score.

This plan could include:

• Figuring out your regular expenses
• Putting together a disciplined payment schedule for any current debts
• Building a budget that allows you to save a regular amount every fortnight/month, while still making any debt repayments necessary
• Setting a reminder for paying bills
• Consider consolidating your debt, if that is beneficial for your personal situation
• Putting the brakes on any further discretionary spending

Changing your credit score for the better can be a challenge, but the sooner you start, the sooner your credit score might start creeping up.

How to refix your mortgage

If it's time to refix your fixed-term mortgage, don't just accept the first deal that your lender offers, as you could miss out. The mortgage market is competitive, and if you're willing to negotiate, banks and lenders are prepared to offer substantial cash incentives to secure your business.

Three consideration when refinancing your mortgage include:

1 Use digital banking

Banks are increasingly using their apps and digital banking services to offer new rates to customers. Not only are digital communications the quickest and most direct method to communicate with your bank, they also make negotiating less nerve-racking. It's far easier to push for a better deal when the human face-to-face element is removed.

In the weeks before your loan term expires, your bank will start to offer you new rates, but don't lock in a deal before you've shopped around. When researching the best mortgage, you need to spend a little time researching what's on offer in the market. Although this can take a couple of hours, it could potentially save thousands of dollars.

2 Compare lenders' offers

Treat refixing your mortgage like arranging home renovations, and get at least three quotes from banks/lenders. Don't just visit their websites, contact them directly for a personalised quote.

What to ask for:

• If you've a sizeable deposit, don't just settle for their special rates, ask for an added discount, at least an extra 10 basis points.
• Ask for a cashback. The going rate is around 1% of any loan.
• By negotiating straight with a lender, you're cutting mortgage brokers out of the deal – so don't be shy to ask for the broker's cut of the pie, too.

Mortgage brokers can provide an invaluable service, especially for first home buyers new to the housing market, and those with complex financing needs. But renegotiating an existing loan is something that's pretty straightforward, and if you're prepared to do the mortgage broker's work comparing loans, why not ask for their cut?

For securing a new mortgage, a broker will get paid a commission by the lender, usually around 0.85% of the loan, which could be in your pocket.

3 Be prepared to switch

If you find a better deal, be prepared to switch, and let your current lender know your intentions. If they think they're about to lose your custom, it could incentivise them to match, or beat, their competitor's offer.

While switching your home loan provider will involve time, effort and paperwork, the financial benefits could be substantial.

What is a mortgage break fee?

A break fee is a penalty charged by lenders if a borrower breaks and repays a fixed-term mortgage early. This can happen if a borrower sells their home, or wants to refinance their mortgage to secure a better deal if rates fall sharply. 

Break fees cover the costs a lender incurs when you break your loan term. For if you break your loan with your lender, it's then forced to break the funding arrangements it has in place with its wholesale funder.

Break fees are usually only a big issue if rates are falling, as you'll have to cover any shortfall in your lender's (and their wholesale funder's) interest earnings. And depending on the size of a mortgage, break fees can cost tens of thousands of dollars.

How are break fees calculated?

To work out a rough break-fee cost, you'll need to know:

• Percentage fall in wholesale interest rates since you fixed the loan
• Remaining loan balance
• Time remaining of fixed term.

As an example, if a borrower opts to fix for five years at 5.8% and the wholesale funding rate, what the bank borrowed the money at, was 4%, and a year later – with four years left on the term and $600,000 left on the mortgage – the borrower wants to break the loan, if the wholesale funding rate has dropped to 2.75%, the break fee would be, roughly:

• 4%-2.75% = 1.25%
• 1.25% of $600,000 = $7500
• $7500 x 4 years = $30,000 break fee 

What is a non-bank lender?

There are 27 registered banks in New Zealand. This means they can hold people's money and offer accounts such as savings and transaction accounts and term deposits. All NZ banks are registered with the RBNZ and are highly regulated to ensure their customers' money is in safe hands.

Non-bank lenders are financial institutions that offer credit and loan products, such as mortgages, that are not funded by other customers' deposits. Instead, non-bank lenders rely on wholesale funding markets, securitisation, private investors, and other sources to finance their mortgage lending activities. While non-bank lenders still have to comply with the Credit Contracts and Consumer Finance Act (CCCFA), which promotes responsible lending, they are far less regulated than banks.

For example, their lending doesn't have to comply directly with loan-to-value ratios (LVRs), which limit lending to people with low deposits. And non-bank lenders won't be affected by the RBNZ's proposed debt-to-income (DTI) restrictions.

Although non-bank lenders are subject to the same regulations as other borrowers when securing warehouse funding from NZ banks.

Pros and cons of non-bank lenders

Because non-bank lenders have more flexibility in their lending procedures, they are often more accommodating of home buyers who have been rejected by the big banks and their one-size-fits-all approach to mortgage lending.

For example, when authorising a home loan, a bank will delve into an applicant's employment history. If the applicant is self-employed, the bank will want to see their financial accounts for at least two years, and will check to ensure all their tax liabilities are up to date. Also, the bank will use the applicant's lowest-earning year as the benchmark for their borrowing potential. This can cause problems for self-employed home buyers.

Non-bank lenders are also more willing to lend to borrowers who have less-than-perfect credit histories, and those with unique financial circumstances.

However, this greater willingness to take on riskier loans does mean that non-bank lenders tend to charge higher fees and interest rates than the big banks.

Advantages of non-bank lenders:

• Fewer regulatory burdens and corporate structure constraints compared to big banks
• More flexible lending criteria, for example more accommodating of self-employed borrowers who might lack the paperwork required by the big banks
• More willing to lend to those with unique financial circumstances and borrowers with imperfect credit histories
• Potential for more personalised customer service and niche product offerings

Disadvantages of non-bank lenders:

• Higher interest rates and fees
• Don't offer the suite of financial products offered by the big banks, e.g. credit cards, savings accounts and online banking
• Lack the recognition and brand presence of the big banks
• Perceived lower financial security and safety compared to traditional banks

Non-bank mortgage lenders in NZ include:

• Avanti Finance
• Basecorp Finance
• CFML Loans
• First Credit Union
• General Finance
• Heretaunga Building Society
• Liberty Financial
• Midlands Mortgage Trust
• Nelson Building Society
• Pepper Money
• Unity Money
• Wairarapa Building Society
• Welcome
• Xceda Finance

What is a mortgagee sale?

When a bank lends money, it requires an assurance that it'll get its money back. So, the borrower is required to pledge their property as security, by granting the bank a mortgage on the home. If the borrower pays off the loan, the mortgage is lifted. But if the borrower defaults on the loan and stops repayments, the bank can sell the property to get its money back. The process is known as a mortgagee sale.

What happens if I miss my mortgage repayments?

If you start missing payments, your bank will likely reach out to you. Typically, they'll try to find a solution with you, especially if you've only missed a payment or two, rather than immediately taking legal action or selling your property.

It's important to be upfront and honest with your bank about your situation. They may ask you to fill out a statement of position, which outlines your income and expenses. This helps the bank understand if you can manage a repayment plan. A financial advisor can assist you with this process and even communicate with your bank on your behalf.

If you're unable to resolve missed loan payments with your bank, or if the issue persists, the bank may send you a letter of demand. This marks the beginning of the formal debt recovery process. The letter will specify the amount of overdue payments and a deadline for payment.

Once again, it's crucial to communicate with your bank. If you can pay the amount by the deadline, inform your bank. If not, notify them as soon as possible and propose a payment amount you can manage. There's still a chance you could work out a repayment plan that satisfies the bank.

If you can't pay the full amount and an agreement can't be reached with the bank, seek independent advice. A financial advisor or lawyer can explore alternatives, such as refinancing with another bank or selling your house independently before the situation escalates to a mortgagee sale.

If you fail to pay the amount demanded by the bank, they have the right to issue a default notice. You'll likely receive this notice in person. The notice will outline the specifics of the default and specify the amount you need to pay by a certain date. This deadline will typically be at least 20 working days from when the notice is served.

What is the mortgagee sale process?

If you are unable to meet the repayment deadline, the bank/lender has the right to sell your property. However, the bank is obliged to get the best price reasonably obtainable at the time of sale. This is typically managed through:

• A registered valuation of the property
• Appointing a real estate agent to market the property for a period of (usually) four weeks
• Properly considering any offers made

The bank does not have to wait for the best time to sell the property, or improve the property before mortgagee sale. A mortgagee sale for a price less than the property's current market value isn't usually considered breach of the bank's obligation.

It's important to remember that, as the owner, you remain liable for the debt to the bank, as well as all costs associated with the property (such as rates, insurance and maintenance) until the property is sold and settlement has taken place.

Will a mortgagee sale cover all my debt?

A mortgagee sale typically aims to cover the outstanding debt owed to the lender (the mortgagee) from the sale proceeds of the property. However, if the sale price is not enough to repay the entire bank debt, you are liable for the outstanding balance. If no agreement can be reached with the bank about repaying the balance, the bank can take recovery action that can ultimately result in your bankruptcy.

What happens if the house is being rented?

If a house is being rented, the bank must inform the tenants when it takes over as landlord. The tenant then pays their rent to the bank. Once the bank has possession, it has the same rights and responsibilities as any landlord.

Whoever buys the house during a mortgagee sale becomes the new landlord from the date of settlement. They inherit the tenancy agreement, along with all the terms and conditions.

In a mortgagee sale, the bank or the buyer who acquires the property at auction has unique powers regarding fixed-term leases. They can terminate the lease by providing notice as if it were a month-to-month agreement. Similarly, the tenant also has the option to terminate the fixed-term lease as if it were a month-to-month arrangement.

Sustainable home loans: what's on offer

If you want to make your home more eco friendly and save money by adding insulation, double glazing or solar systems, there are low cost sustainable home loans available from the banks. Canstar looks at what's on offer from ANZ, ASB, BNZ, Kiwibank, Westpac

ANZ Good Energy Home Loan

The Good Energy Home Loan is a top-up for existing ANZ home loan customers that can be used to pay for sustainable home initiatives. It provides access up to $80,000 at any one time to undertake sustainable initiatives, at a special 1% interest rate fixed for three years.

What can you use it for?

Energy efficiency

• Double/triple glazing or glazing upgrades
• Heat pumps/hot water heat pumps
• Insulation
• Ventilation systems

Renewable energy

• Heat pump water heaters or solar water heaters
• Solar panels, batteries and inverters

Clean transport

• Electric bikes
• EVs and hybrids purchased from a registered motor vehicle trader + chargers

Sustainable water

• Home water tanks and plumbing

ASB Better Homes Top Up

The Better Homes Top Up is available to help to make your home drier, warmer, or more energy efficient, or to help you purchase a hybrid or electric vehicle. It provides access up to a maximum of $80,000 to undertake sustainable initiatives, at a special 1% interest rate fixed for three years.

What can you use it for?

Energy efficiency

• Double/triple glazing or glazing upgrades
• Heat pumps or approved wood/pellet burner
• Insulation
• Ventilation systems, including extractor fans or kitchen rangehoods

Renewable energy

• Solar hot water systems
• Solar panels, batteries and inverters

Clean transport

• EVs and hybrids purchased from a registered motor vehicle trader + chargers

BNZ Green Home Loan Top Up

The Green Home Loan Top Up from BNZ is available to help you undertake sustainable initiatives at your home. For example, to make your home drier, warmer or more energy efficient, or to help you purchase a plug-in hybrid or electric vehicle. It provides access to a maximum of $80,000 at a special 1% interest rate fixed for three years.

What can you use it for?

Energy efficiency

• Double/triple glazing or glazing upgrades
• Heat pumps
• Insulation
• Ventilation systems

Renewable energy

• Solar hot water systems
• Solar panels, batteries and inverters

Clean transport

• Electric bikes
• EVs and hybrids purchased from a registered motor vehicle trader + chargers

Sustainable water

• Home water tanks and plumbing

Kiwibank Sustainable Energy Loan

Rather than a low-interest loan, Kiwibank's Sustainable Energy Loan provides cash towards the installation of sustainable energy for your home. If you borrow more than $5000, Kiwibank will contribute up to $2000 over four years towards the cost of the system.

The $2000 subsidy is paid in three instalments: $800 at the end of the first year and $400 at the end of each of the following three years.

What can you use it for?

• Small-scale hydro, wind energy or geothermal resources
• Solar power systems

Systems must be for general public use and supplied and installed by a company that's a member of the Sustainable Electricity Association of New Zealand (SEANZ).

Westpac Greater Choices

Westpac will loan you up to $50,000 interest free for five years to invest in heat pumps, insulation and more.

What can you use it for?

• Double/triple glazing or glazing upgrades
• EVs and vehicle chargers
• Flood-risk remediation 
• Heat pumps or approved wood/pellet burner
• Insulation
• Rainwater tanks
• Solar panels, batteries and inverters
• Ventilation systems