Similarly as you need to decide on the best mortgage type (floating, fixed or combination) to suit your
circumstances, you also have an array of different ways to repay the mortgage. Simply put, the shorter the term,
the less overall interest which will be paid over the term of the loan. However, the downside of this is the short
term pain of having less money in your pocket for the duration of the loan.


Table Mortgage

This is the most common type of home loan. You can choose a variable term from 5 all the way up to 30 years
with most lenders. Most of your early repayments go to pay interest, while most of the later payments go to pay
off the principal (the lump sum you borrowed).

Advantages:

  1. Table loans require regular payments and a set date when the loan will be paid off.
  2. They provide the certainty of knowing what payments will be (unless you have a floating rate, in which
    case repayment amounts can change).

Disadvantages:

  1. Fixed regular payments might be difficult to make for people with irregular income, such as self
    employed.


Revolving Credit

Revolving credit loans work like an overdraft. Your pay goes straight into the account. Bills are paid out of the
account only when they are due. By keeping the loan as low as you can at any time, you pay less interest
because lenders calculate interest daily.

You can make lump sum repayments and re-draw money up to your limit. Some revolving credit mortgages
gradually reduce the credit limit to help you pay off the mortgage.

Advantages:

  1. If you're well organised, you can pay off the mortgage faster.
  2. The system can suit people with uneven income since there are no fixed repayments.
  3. Putting surplus funds into this account rather than a separate savings account will give bigger interest
    savings and also avoids the tax on the savings account interest.

Disadvantages:

You need discipline. It can be tempting to spend up to your credit limit and stay in debt longer.


Reducing loan

Reducing or straight line mortgages repay the same amount of principal with each repayment, but a reducing
amount of interest each time. These are relatively rare in New Zealand. Payments start high, but reduce (in a
straight line) over time. Fees are similar to table loans.

Advantages:

  1. You pay less interest overall than with a table loan because early payments include a higher repayment
    of principal.
  2. These may suit borrowers who expect their income to drop for example, if one partner plans to give up
    work in a few years time.

Disadvantages:

  1. If you can afford higher payments, you would be better to take a table loan with payments high for the
    whole term, thus paying less interest.


Interest Only

You don't repay the money you've borrowed until an agreed time. Some borrowers take an interest-only loan for
a year or two and then switch to a table loan.  

Advantages:

  1. You can manage your cash flow early in the cycle. Perhaps move to a table mortgage situation
    sometime in the future when you anticipate you will be in a more financially secure position.
  2. You have more cash on hand for such things as home improvements. The equity improvements you
    make to your property from such activities may well exceed the equity increase from a table loan
    reduction.

Disadvantages:

  1. You still owe the full amount at the end of the term.
Mortgage Payment Choices

Innovation + Experience
PO BOX 9018, Wellington 6141 | phone: (04) 240-0124 | fax: (04) 232-4414 | email: valuer@ vcnz.co.nz
Innovation + Experience