Common mortgage mistakes
A mortgage is likely the biggest financial commitment of your life. Avoiding these common mistakes can save you tens of thousands of dollars and a lot of stress.
Mistake 1: Not comparing rates
Too many Kiwis just go to their own bank without shopping around. The difference between the best and worst mortgage rate in NZ can be 0.50% or more. On a $500,000 loan over 30 years, that's roughly $55,000 in extra interest.
Fix: Always compare rates across all NZ lenders before committing.
Mistake 2: Borrowing the maximum
Just because a bank will lend you $700,000 doesn't mean you should borrow that much. Life happens — job loss, illness, rate rises, babies. Borrowing at your absolute maximum leaves no breathing room.
Fix: Use the mortgage calculator to check repayments at a rate 2% higher than current. If that's still comfortable, you're in a good position.
Mistake 3: Ignoring the total cost
Focusing on the monthly payment rather than the total cost of the loan is a trap. A lower monthly payment via a longer loan term means you pay far more interest overall.
Fix: Compare total interest paid across different loan terms, not just the monthly repayment.
Mistake 4: Forgetting about fees
Application fees, low-equity margins, break fees, and legal costs can add thousands to your mortgage cost. A "free" mortgage from one bank might cost more overall than a mortgage with a small fee from another.
Fix: Ask every lender for a full breakdown of all fees.
Mistake 5: Locking in at the wrong time
Fixing for 5 years at what seems like a good rate — only to watch rates drop significantly — is painful. Conversely, staying floating when rates are about to surge costs you too.
Fix: Consider splitting your loan across multiple terms (the ladder strategy) to reduce timing risk.
Mistake 6: Not getting pre-approved
House-hunting without pre-approval wastes time and weakens your position. You might fall in love with a property you can't afford, or miss out because you weren't ready to move fast.
Fix: Get pre-approval before you start looking. It takes just a few days.
Mistake 7: Choosing the wrong loan structure
Putting your entire mortgage on one fixed term, not using revolving credit when you should, or choosing interest-only when P&I is more appropriate — the wrong structure costs money.
Fix: Discuss loan structuring with your broker or bank. Consider a mix of fixed, floating, and revolving to optimise your setup.
Mistake 8: Not re-evaluating regularly
Set-and-forget is the enemy of a good mortgage outcome. Rates change, your circumstances change, and new products appear regularly.
Fix: Check current rates on RatePal whenever your fixed term is about to expire — or even just annually to stay informed.
Frequently asked questions
What is the biggest mortgage mistake most New Zealand buyers make?
The biggest mistake is not comparing lenders thoroughly. Many buyers accept their first offer without shopping around. A 0.50% rate difference on a $400,000 mortgage costs $2,000+ annually—yet comparing takes just hours. Always get 3–5 quotes before committing.
Is it wise to borrow the maximum amount a lender approves?
No. Just because a lender approves you for $500,000 doesn't mean you should borrow it. Borrow only what you can comfortably repay at higher rates (stress test). Over-borrowing leaves no buffer for job loss, rate rises, or emergencies. Borrow conservatively and sleep soundly.
Why shouldn't I ignore mortgage fees when comparing lenders?
A lender with a 0.25% lower rate but $2,000 higher fees might be more expensive overall. Always compare all-in costs (interest + fees), not just the headline rate. Over a 5-year term, a small rate difference compounds to thousands in savings or extra costs.
Should I fix my entire mortgage at one rate, or use a mortgage ladder strategy?
Locking your entire balance at one rate is simpler but risky (if rates fall, you're stuck). A mortgage ladder (splitting into multiple fixed terms) spreads risk and allows refinancing at different times. Most borrowers benefit from laddering, but it requires more active management.
What other common mortgage mistakes should I avoid?
Avoid: taking a loan with payment shock risk (interest-only periods ending unexpectedly), not making extra repayments (even $50/week saves years and tens of thousands), overlooking offset accounts or revolving credit (which reduce interest), and failing to review your rate annually (which can cost you thousands in excess interest).
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