Table loans

Most people choose this type of mortgage. Your regular repayments are the same each week, fortnight or month, unless your interest rate changes.

Here’s how it works

Every repayment includes a combination of interest and principal. At first, your repayments comprise mostly of interest but as the amount you still owe begins to decrease, your regular repayment will include less interest and repay more of the principal (the amount you borrowed). Most of your later mortgage repayments go towards paying back the principal.

With a table loan you can choose a fixed or a floating interest rate. And with most lenders you can select a term (how long you’ll take to repay the loan) of up to 30 years.

Note: Based on an average fixed term of around 2.5 years, borrowers will likely refix 12 times over a 30 year mortgage.

Revolving credit

Where table loans are great for regular incomes, revolving credit loans are more flexible and can work better for people whose income tends to be more sporadic.

They operate like a large overdraft where all your pay goes into the account, and all your bills and such come out of it up to a predetermined limit. Revolving credit loans require discipline to make them work to your advantage since there are no set repayments. For this reason, some people prefer to set a credit limit that gradually reduces over time.

In addition to offering great flexibility, because all your money goes into your loan account each payday, it’s acting as one big home loan repayment and as such can result in you paying less interest over time.

Offsetting

An offset loan works in much the same way as a table loan in that you have set repayments to make weekly, fortnightly or monthly. The cool part is in the way an offset loan also lets you save in interest costs by subtracting any money you have sitting in your accounts from the total amount owing on your loan when calculating interest. Because banks calculate interest daily, this means you’re paying interest on a smaller amount — even if the money is only in there for a day or two, it all counts. Each bank will operate an offset loan with slight differences, however, some, like BNZ, will even let you group the accounts of your family to help offset an even larger amount.

Interest only

An interest only loan isn’t a long term option— you’d never pay the home loan off. However, they can be a good short term choice if you need extra money in the hand right now.

You’d pay just the interest portion of your loan for a period of time and none of the principal. You’ll end up paying more interest in the long run, but free up cash when you need it most. People typically switch back to principal and interest payments once they’ve done what they need to with the interest only loan.

Non-table

A less common type of loan is a non-table or ‘straight line’ loan. With these you’ll repay a constant amount of your principal each week/month/fortnight for the life of the loan.This is different from a table loan where the amount of principal paid starts off small and gets larger. While the interest portion of your non-table loan payment starts off large, over time it decreases in a ‘straight line’ (hence the name). Sounds great, right? Well, yes, however, the downside is that because the repayment starts off much higher, and decreases, you don’t make regular payments each week, fortnight or month.

Talk to the experts

Picking the right loan type can be tricky for old hands let alone first home buyers, so make the most of the expertise at BNZ and contact us here or  talk to us in store to find out which loan type — or mix of different loan types — is best suited to how you like to structure your money.

We want to hear from you

GoodHome should be an enjoyable and worthwhile place to visit filled with information that helps you to be the smartest homeowner you can be. We want to hear about anything you found useful or anything you didn’t, and anything you want to see more of that would help make this the perfect site for you - email us at goodhome@bnz.co.nz

This information is for general information purposes only. To the extent that it contains financial advice, it does not take into account your particular financial situation or goals. BNZ recommends that you seek advice specific to your circumstances from your financial adviser.