Different types of mortgages in New Zealand

Purchasing your first home is a significant milestone, and choosing the right mortgage is crucial to your financial well-being. At Best Mortgages, we are dedicated to helping first home buyers in Tauranga and across New Zealand navigate the various mortgage options available. Here’s a comprehensive guide to the different types of mortgages and how to choose the best one for your needs.

What is a Mortgage?

A mortgage is a loan used to purchase a property. The property itself serves as collateral for the loan. Mortgages typically have terms ranging from 15 to 30 years, during which the borrower makes regular payments to repay the loan amount plus interest.

Types of Mortgages in New Zealand

Fixed-Rate Mortgages

Definition: A fixed-rate mortgage has an interest rate that remains the same for a set period, usually between one to five years.

Best For: Buyers who prefer predictable monthly payments and want to lock in a low-interest rate.

Advantages: Stability and protection from interest rate fluctuations.

Considerations: Fixed rates may be higher than initial variable rates, and breaking a fixed-rate term early can incur penalties.

Variable-Rate Mortgages

Definition: A variable-rate mortgage has an interest rate that can change based on the lender’s benchmark rate or the market interest rate.

Best For: Buyers who are comfortable with potential changes in their monthly payments and want to take advantage of potentially lower rates.

Advantages: Flexibility and the potential for lower initial rates.

Considerations: Payments can increase if interest rates rise.

Interest-Only Mortgages

Definition: For a set period, usually up to five years, the borrower only pays the interest on the mortgage. After this period, repayments switch to include both principal and interest.

Best For: Buyers who want lower initial payments or investors who plan to sell the property before the principal repayments start.

Advantages: Lower initial payments and potential tax benefits for investors.

Considerations: The principal remains unchanged during the interest-only period, and future payments can be significantly higher.

Combination Mortgages

Definition: Also known as split mortgages, these combine fixed and variable rate components within the same loan.

Best For: Buyers who want the security of a fixed rate but also want to take advantage of potential variable rate benefits.

Advantages: Diversification of interest rate risk and flexibility.

Considerations: Managing different repayment schedules and understanding both types of rates.

Low Deposit Mortgages

Definition: Mortgages that require a smaller deposit, often around 5% to 10% of the property’s value.

Best For: First home buyers who have difficulty saving a large deposit.

Advantages: Easier entry into the property market.

Considerations: Higher interest rates and the need for Lenders Mortgage Insurance (LMI).

How to Choose the Right Mortgage

Choosing the right mortgage depends on your financial situation, risk tolerance, and long-term goals. Here are some steps to help you make an informed decision:

  1. Assess Your Financial Situation: Calculate your income, expenses, and how much you can afford to repay each month. Use our online mortgage calculator to get an estimate.
  2. Understand Your Options: Learn about the different types of mortgages and their pros and cons. Consider how long you plan to stay in the home and your future financial outlook.
  3. Seek Professional Advice: Consult with a mortgage broker to discuss your options and get personalized recommendations. At Best Mortgages, we offer free consultations to help you find the best mortgage solution.
  4. Compare Rates and Terms: Look at different lenders and compare their rates, fees, and terms. Remember to consider both the interest rate and the overall cost of the loan.
  5. Prepare Your Documentation: Gather all necessary documents such as proof of income, identification, and details of any existing debts. Being prepared can speed up the approval process.

Why Choose Best Mortgages?

At Best Mortgages, we are committed to providing personalized service to help you find the best mortgage. Here’s why you should work with us:

  • Expertise: Our experienced brokers understand the New Zealand mortgage market and can guide you through the process.
  • Nationwide Service: Although based in Tauranga, we assist clients across New Zealand, ensuring you receive top-notch service no matter where you are.
  • Comprehensive Support: From initial consultation to finalizing your loan, we offer support every step of the way.

For more information on our mortgage services, visit our mortgages page. Ready to take the next step? Call us at 021 449 177 or fill out our online application form.


Understanding the different types of mortgages available in New Zealand is crucial for making an informed decision as a first home buyer. By assessing your financial situation, understanding your options, and seeking professional advice, you can find a mortgage that suits your needs and helps you achieve your homeownership dreams. At Best Mortgages, we are here to guide you every step of the way.

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