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Mortgage terms, explained
Home loans come with their own vocabulary. Here’s what the common terms actually mean, in plain English. No jargon, no fine print.
Seventeen terms, minus the jargon
The words you’ll hear from lenders, lawyers and brokers, explained the way we’d explain them on a call.
Cashback
A lump-sum contribution some lenders offer when you take out a new loan with them. It usually comes with a clawback condition: leave the lender within an agreed period and you may have to repay some or all of it.
Conditional approval
A lender’s yes with strings attached. The loan is approved once you satisfy their conditions, commonly a registered valuation, confirmation of your deposit, or the sale of another property.
Deposit
The part of the purchase price you contribute yourself, whether from savings, a KiwiSaver first-home withdrawal, a gift, or equity in another property. The lender funds the rest.
Equity
The difference between what your property is worth and what you still owe on it. Equity grows as you repay your loan or as the property’s value rises, and it can often be used as the deposit for your next purchase.
Fixed rate
An interest rate locked in for an agreed period, so your repayments stay the same for that time. Breaking a fixed term early can trigger a break fee, depending on how rates have moved.
Floating rate
An interest rate the lender can move up or down at any time, so your repayments can change. The trade-off is flexibility, because floating loans usually let you make extra repayments without penalty.
Interest-only
A repayment structure where you pay only the interest for an agreed period, so the amount you owe doesn’t reduce. It lowers repayments in the short term and is most common on investment lending.
LVR (loan-to-value ratio)
Your loan amount as a percentage of the property’s value. Lenders use LVR to price loans and apply lending limits. The lower your LVR, the more options you generally have.
Mortgage broker / adviser
A financial adviser who compares lenders on your behalf, recommends a structure, and manages the application through to settlement. Usually paid by the lender on settlement, so the service typically costs you nothing.
OCR (Official Cash Rate)
The benchmark interest rate set by the Reserve Bank of New Zealand. It influences the rates lenders offer on home loans, though lenders’ rates don’t move in lockstep with it.
Offset account
An everyday account linked to your home loan. The money sitting in it is offset against your loan balance, so you only pay interest on the difference. Your savings work like extra repayments without being locked away.
Pre-approval
A lender’s indication of how much they’ll lend you before you’ve found a property, subject to conditions and an expiry date. It lets you house-hunt and make offers knowing your finance is in place.
Principal
The amount you actually borrowed, as distinct from the interest charged on it. On a standard table loan, each repayment covers the interest due plus a slice of principal, so the debt shrinks over time.
Refinancing (refix vs refinance)
Refixing means choosing a new fixed term with your current lender when one ends. Refinancing means moving your loan to a different lender, often to get a better deal or restructure the lending.
Serviceability
A lender’s assessment of whether you can comfortably afford the repayments. They test your income and expenses against a rate higher than the one you’ll actually pay, to allow for rates rising.
Settlement
The day the purchase completes: your lender advances the loan to your solicitor, the money changes hands, and ownership of the property transfers to you.
Term
The total length of time you have to repay the loan in full. A longer term means smaller regular repayments but more interest paid overall; a shorter term works the other way.
See what the numbers mean for you
Try our repayment calculator, or talk to us and we’ll translate the jargon into a plan.