Use the calculator
Try the Extra Repayment Calculator to put these concepts into practice.
Key takeaways
- βFloating rate mortgages allow unlimited extra repayments; fixed rates typically allow limited repayments without break fees
- βNZ$600,000 at 6.8% β NZ$400/month extra saves approximately NZ$173,000 in interest
- βSplitting your mortgage (part fixed, part floating) lets you make unlimited extra repayments on the floating portion
- βRevolving credit facilities are New Zealand's most flexible option for reducing mortgage interest
- βBreak fees apply when paying off a fixed rate early and can be substantial in certain rate environments
Fixed vs floating: the fundamental rule
Most New Zealand banks offer fixed rate terms (typically 6 months to 5 years) and floating rate. The key rule:
Floating rate: Unlimited extra repayments at any time, no penalty. This is why many NZ borrowers keep at least some of their mortgage on floating.
Fixed rate: Extra repayments are typically not permitted or severely restricted. Paying more than the regular instalment during a fixed term may incur a "break fee" that compensates the bank for the interest rate differential.
Break fees can range from near zero (in rising rate environments, where your fixed rate is now below market) to NZ$30,000+ on large loans in falling rate environments. Always request a written break fee estimate before making any large extra repayment on a fixed rate.
π‘ Tip: Before making any large extra repayment on a fixed rate, always request a written break fee estimate from your bank. This is free and takes a few days.
The NZ split mortgage strategy
The most common NZ mortgage strategy is splitting: fixing a portion for rate certainty while keeping some on floating for extra repayment flexibility.
Example: NZ$600,000 mortgage. Fix NZ$400,000 for 1β2 years at 6.5%. Keep NZ$200,000 on floating at 7.2%. Direct all surplus cash to the floating portion.
This gives you predictable payments on the fixed portion and maximum flexibility on the floating portion. The optimal split depends on your income certainty and view on rate direction. Many NZ advisers suggest keeping at least 20β30% on floating.
Revolving credit: New Zealand's most flexible option
A revolving credit facility works like a mortgage combined with an overdraft. You have a credit limit (your mortgage balance), and the account fluctuates daily as income arrives and expenses leave.
Your salary goes directly into the revolving credit account, immediately reducing your balance and daily interest charge. When you spend, the balance rises. Interest is calculated daily on the actual balance.
A disciplined borrower who consistently keeps the account balance low can pay off a NZ mortgage significantly faster than with a standard repayment structure.
The risk: revolving credit requires strong financial discipline. Without it, it becomes an expensive way to run an overdraft. Best suited to people with consistent income who can genuinely keep the balance low.
Frequently Asked Questions
Calculators mentioned in this guide
Disclaimer: Calculations are estimates for general guidance only and do not constitute financial advice. Mortgage rates, LVR restrictions, and lending criteria vary by lender and may be subject to RBNZ requirements. Consult a registered financial adviser before making property decisions.