What is revolving credit?
A revolving credit mortgage (also called a revolving home loan or flexi mortgage) works like a large overdraft facility (similar to an offset account but structured differently) secured against your home. You have a credit limit equal to your loan amount, and you can deposit and withdraw money freely. Interest is calculated daily on the outstanding balance.
How it works in practice
Imagine you have a $100,000 revolving credit facility:
- Your salary of $5,000 goes in — your balance drops to $95,000
- You pay bills and living expenses — your balance rises back toward $100,000
- Interest is charged daily on whatever the balance is
- By having your income sitting in the account (even briefly), you reduce the average daily balance and pay less interest
Benefits of revolving credit
- Reduced interest — every dollar sitting in the account reduces interest charged
- Complete flexibility — withdraw or repay any amount, any time, no fees
- Access to funds — your equity is always available if needed (great for emergencies)
- Can accelerate repayment — disciplined users can pay off their mortgage years faster
Risks and drawbacks
- Higher rate — revolving credit typically carries the floating rate, which is higher than fixed rates
- Requires discipline — if you treat it like free money and spend up to the limit, you'll never pay it off
- No forced repayment — unlike a standard mortgage, there's no mandatory principal reduction
- Can increase debt — undisciplined borrowers may actually end up owing more
Who should use revolving credit?
Revolving credit works best for people who are financially disciplined and have regular, predictable income. It's particularly effective when:
- You have variable or lumpy income (bonuses, commissions)
- You maintain a consistently low balance through disciplined spending
- You use it for a smaller portion of your total mortgage (e.g., $50,000–$100,000)
Use our mortgage calculator to see how different loan structures affect your total interest cost.
Frequently asked questions
How does a revolving credit mortgage work in New Zealand?
A revolving credit combines a loan account and a drawdown facility in one. As you repay the loan, you can re-borrow those funds without refinancing or paying additional application fees. This flexibility allows you to draw down, repay, and redraw repeatedly—ideal for variable cash flow or accessing equity.
What is the difference between revolving credit and a standard mortgage?
A standard mortgage has a set repayment schedule; you can't re-borrow without refinancing. Revolving credit lets you access repaid amounts immediately, offering flexibility. However, revolving credit typically costs 0.50–1.00% more in interest and can encourage over-borrowing if not managed carefully.
Who benefits most from a revolving credit mortgage?
Revolving credit suits: business owners and self-employed (variable income), investors (accessing equity for multiple properties), and those expecting large irregular expenses. If your income is steady and predictable, a standard mortgage is likely cheaper.
Can I use revolving credit to improve my financial flexibility?
Yes. If you have irregular income or expect lumpy expenses, revolving credit provides a safety net; you can draw down during lean months and repay during strong months. This flexibility is valuable, but the higher interest rate means it's most cost-effective for active borrowers who genuinely use the re-draw facility.
What is the risk of having a revolving credit mortgage?
The main risk is over-borrowing. Because funds are readily accessible, it's easy to draw more than you can comfortably repay, especially during downturns. Treat your available revolving credit as a professional facility, not a personal credit card. Set internal rules about maximum draw-down amounts.
Explore revolving credit options
Compare revolving credit mortgages and see if flexible borrowing is right for your situation.