Mortgages 101

Let’s start with the basics

You want to buy a house. The asking price is $500,000, but you and your partner have only saved $100,000. You need a handy, dandy mortgage. A mortgage is essentially a loan from the bank for you to purchase real estate. And like any other loan, you will need to pay it back.

Principal

For the $500,000 house, you already have $100,000, hence you only need to borrow $400,000. This is the principal – the original amount you borrow for your mortgage.

Deposit

Nowadays, due to restrictions introduced by the Reserve Bank, banks in New Zealand generally require a 20% deposit; so if you want to buy a house for $500,000, the bank will (generally) expect you to have $100,000 (20%) as a deposit.

TIP! If you don’t have a 20% deposit, submit a loan request and one of our partner brokers will discuss your options with you.

Interest

Interest is the cost of borrowing money. When you take out a mortgage, you agree to an interest rate with the bank, which determines how much you will pay the bank to continue lending. Interest rates in New Zealand now range from 4% to 5%, but can vary based on the bank, type of mortgage, your credit rating, and your personal situation.

TIP! Have a look at our mortgage comparisons to see how your repayments might differ for the different interest rates.

But as they say, there’s no such thing as a free lunch. When you take out a mortgage, you don’t really own the house in full, until you repay your loan and all interest payments. If you fail to make your repayments, the bank can sell your house to claim back whatever you owe them.

“Sounds good and scary at the same time!”

Most people don’t have the money to purchase a property outright. As of the week ending 27th May 2016, there were around 7,000 mortgage approvals in New Zealand. Mortgages are debt, so you mustn’t take it lightly. But at the same time, mortgages give you the ability to purchase a home of your own.

If you want to calculate how much your repayments will be, use our repayment calculator. Not sure how much you can afford? Use our affordability calculator to figure out how much you can borrow.