SBS Bank Home Loans

There is a choice of different mortgages available in NZ. Here are the four most commonly used by Kiwis to purchase a property:

Fixed-rate home loan

A fixed-rate home loan has an interest rate that is set for a certain amount of time – commonly 1, 2, 3, 4 or 5 years. Current fixed-rates are at historic lows.

The main advantage of a fixed-rate loan is that it gives you certainty of repayments over the fixed term. This is because the interest rate is guaranteed not to change.

The main disadvantage of a fixed rate loan is the inflexibility: generally large additional payments cannot be made. You’ll probably also face a break fee if you decide to switch mortgages or lenders before the end of the fixed term.

Floating rate home loan

A floating-rate loan means that the interest rate will rise and fall over the period of your home loan. This may be in response to movements in the Official Cash Rate, or due to a business decision by your financial institution.

The main advantage of a floating-rate loan is flexibility. While you must meet your minimum monthly repayment, you can usually pay more if you want to. There is also no cost penalty if you decide to switch mortgages or lenders.

A disadvantage of a floating rate loan is that your minimum repayment amount may rise or fall at any time. If you are on a tight budget, this could be a real problem for you. Floating rates are also usually higher than fixed rates.

Interest-only home loan

Only the interest is paid on an interest-only home loan, rather than both the interest and the principle. This type of loan can be useful for some investors, who can claim the interest as a tax deduction, or buyers who only plan holding the property for a short time before selling it.

Interest-only home loans are not recommended for standard owner-occupiers, due to the increased long-term interest costs associated with not paying off the loan principal (the original loan amount).

Generally, interest-only home loans have a short time frame (up to five years) before they revert to a principal and interest loan.

What is a line of credit home loan?

A line of credit is a loan borrowed against the equity in your home. It gives you the ability and flexibility to access a portion of the loan at any time, up to the agreed limit, and is similar to an overdraft in this way. Essentially, you can take money out that you’ve already put in, for other purposes. You can also pay money into the loan at any time which means you can pay off your mortgage faster, if you wish. It is not generally a loan set up to purchase a property, but rather set up against the equity in an existing property.

Other home loan features

There are many different features that may be attached to your home loan. These can include:

• An offset account
• A redraw facility
• The ability to make extra repayments
• The ability to split the loan between fixed and variable (floating)
• The ability to switch to a different type of loan
• Ability to pre-pay interest
• Online functionality
• Lending terms, including the LVR (loan to value ratio) allowable
• Guarantor security availability

A summary of features that we look for in an outstanding value home loan are contained in the Methodology attached to our latest Home Loan Star Ratings Report.

Whether you’re buying a house, a unit, a duplex or a penthouse, Canstar’s home loan updates are a great place to keep up-to-date and informed about everything that’s happening in the real estate market.