Essential mortgage terms
The mortgage world is full of jargon. This glossary explains the key terms you'll encounter when getting a home loan in New Zealand, in plain English.
A – D
Amortisation
The process of paying off your mortgage through regular payments that cover both interest and principal. An amortisation schedule shows how each payment is split between interest and principal reduction over the life of the loan.
Break fee
A charge from your bank if you repay or restructure a fixed-rate mortgage before the term ends. Calculated based on the difference between your rate and current wholesale rates, the remaining term, and your loan size.
Bridging finance
A short-term loan that helps you buy a new property before selling your existing one. Typically expensive, so used as a last resort.
Cross-security (cross-collateralisation)
When a bank uses more than one property as security for your lending. Common for investors — but means the bank has a claim on multiple properties if you default.
DTI (debt-to-income ratio)
The ratio of your total debt to your gross annual income. The RBNZ limits most owner-occupier mortgages to 6x DTI and investors to 7x DTI.
E – L
Equity
The difference between your property's value and what you owe on it. $800,000 property minus $500,000 mortgage = $300,000 equity.
Fixed rate
An interest rate locked in for a set period (6 months to 5 years). Your repayments stay the same during this period regardless of market rate changes.
Floating rate
A variable interest rate that moves up and down with the market. Offers more flexibility than fixed but less certainty.
Interest-only (IO)
A loan where you only pay interest each month, with no principal repayment. Your loan balance stays the same. Common for investors.
LEM (low-equity margin)
An extra interest rate margin charged by banks when your LVR exceeds 80% (i.e., deposit below 20%). Typically 0.25%–1.00%.
LVR (loan-to-value ratio)
Your mortgage amount as a percentage of the property's value. A $400,000 loan on a $500,000 property = 80% LVR.
M – R
Mortgage broker
A professional who helps you find and apply for a mortgage across multiple lenders. Brokers are typically paid by the bank, not the borrower.
OCR (official cash rate)
The interest rate set by the Reserve Bank of NZ. It influences all other interest rates in the economy, including mortgage rates.
Offset account
A savings or transaction account linked to your mortgage. The balance reduces the amount of interest charged on your loan. Learn more in our offset account guide.
Pre-approval
A conditional commitment from a lender to provide you with a mortgage up to a specified amount. Gives you confidence when house-hunting.
Principal
The original amount borrowed (or the remaining balance). As you make repayments, the principal gradually decreases.
Revolving credit
A flexible home loan that works like a big overdraft. Your salary goes in and expenses come out, with interest calculated daily on the balance.
S – Z
Settlement
The legal process where ownership transfers to you and the mortgage funds are paid to the seller. Typically occurs on the date specified in your sale and purchase agreement.
Swap rate
The wholesale interest rate banks pay to borrow for fixed terms. Swap rates influence fixed mortgage rates and often move ahead of OCR changes.
Table loan
The most common mortgage type in NZ. Equal regular payments throughout the term, with the proportion going to interest vs principal changing over time (early payments are mostly interest).
Top-up
Borrowing additional money on an existing mortgage. Often used for renovations, investment, or debt consolidation.
Frequently asked questions
Why do I need to understand mortgage terminology?
Mortgage jargon is confusing, but understanding key terms helps you compare lenders, negotiate better deals, and make informed decisions. LVR, DTI, break fees, and OCR are common terms that directly affect your cost and borrowing power. Learning these protects your financial interests.
What is the difference between fixed and floating rates?
A fixed rate stays the same for a set term (1–5 years), protecting you from rate rises. A floating rate changes monthly with market conditions, offering lower starting rates but payment uncertainty. Learn more about fixed vs floating to choose the right option.
What does LVR mean and why does it matter?
LVR (Loan-to-Value Ratio) is the percentage of property value you're borrowing. Lower LVR (higher deposit) gets you better interest rates. For example, 80% LVR earns better rates than 90% LVR. Understand LVR restrictions and how they affect your borrowing.
What is DTI and how does it affect my borrowing power?
DTI (Debt-to-Income Ratio) is the percentage of your gross income consumed by all debts. Lenders prefer DTI below 80%. A higher DTI means less borrowing power. Learn how to improve your DTI before applying for a mortgage.
What does OCR mean and how does it affect my mortgage?
The OCR (Official Cash Rate) is the Reserve Bank's interest rate, which influences NZ mortgage rates. Floating rates closely follow the OCR, while fixed rates respond to market expectations. Understand how OCR flows through to your mortgage.
Learn more about mortgages
Explore our guides on fixed rates, floating rates, LVR, and other key mortgage concepts to become a confident borrower.