Mortgage Glossary, A to Z

Mortgages come with a lot of terminology that gets thrown around as if everyone already knows what it means. Most of the time, nobody explains it properly the first time you hear it. Here is a plain English reference for the terms that come up most often, organised alphabetically so you can jump straight to what you need.

A

Add-back: An expense in a self employed applicant's accounts that a lender agrees to add back to income when assessing serviceability, because it is a one off or non cash cost rather than an ongoing expense.

Application Fee: A fee some lenders charge to process a loan application, though many New Zealand lenders do not charge one for standard residential lending.

Approval in Principle: Another term for pre-approval, an indication of what a lender would be willing to lend based on your circumstances at the time.

B

Bank Valuation: A registered valuer's assessment of a property's value, commissioned by or for the lender, used to confirm the property supports the loan amount.

Boarder Income: Rental income from a boarder living in part of your home, which some lenders will include, usually conservatively, when assessing how much you can borrow.

Break Fee: A cost charged by your lender if you exit a fixed rate loan before the fixed term ends, calculated based on the difference between your fixed rate and current wholesale rates among other factors.

Bridging Finance: Short term lending used to cover the gap between buying a new property and selling an existing one, when the settlement dates do not line up.

C

Cashback: A cash contribution some lenders offer when you take out or refinance a mortgage with them, often with a condition that you stay with that lender for a minimum period.

Conditional Offer: An offer to purchase a property that is subject to conditions being met, such as finance approval or a building inspection, before it becomes binding.

Construction Loan: A loan structured to release funds in stages as a new build progresses, rather than as a single lump sum at settlement.

Credit Score: A number reflecting your credit history, used by lenders as one factor among several when assessing a loan application.

D

Debt to Income (DTI): A measure comparing your total debt to your gross income, which New Zealand lenders operate within limits on, alongside their usual serviceability assessment.

Deposit: The portion of a property's purchase price you fund yourself, rather than borrowing, commonly expressed as a percentage of the purchase price.

Discharge: The formal process of removing a mortgage from a property's title, typically happening when a loan is fully repaid or refinanced to a new lender.

E

Equity: The difference between your property's current value and what you still owe on it, effectively the portion of the property you own outright.

F

Fixed Rate: An interest rate locked in for a set period, keeping your repayments unchanged during that term regardless of market movements.

First Home Loan: A low deposit lending option backed by Kainga Ora, allowing eligible buyers to purchase with as little as 5 percent deposit through participating lenders.

Floating Rate: Also called a variable rate, an interest rate that moves with the market, offering more flexibility but less repayment certainty than fixed.

G

Guarantor: Someone, often a family member, who agrees to be responsible for a loan if the borrower cannot meet repayments, sometimes used to help a buyer with a smaller deposit.

I

Interest Only: A repayment structure where you pay only the interest on a loan for a set period, without reducing the principal balance, commonly used for a limited term rather than the life of the loan.

K

Kainga Ora: The government housing agency that backs the First Home Loan low deposit lending scheme among its other housing initiatives.

KiwiSaver Withdrawal: The ability for eligible first home buyers to withdraw most of their KiwiSaver balance to put toward a deposit.

L

Lending Criteria: The specific requirements a lender applies when assessing whether to approve a loan, which vary between lenders.

LIM Report: A Land Information Memorandum, a council issued report showing consents, rates, hazards and other information about a specific property.

Loan to Value Ratio (LVR): The loan amount expressed as a percentage of the property's value, a key factor in what deposit you need and what rate you are offered.

Low Equity Margin: An additional interest rate charged on loans with a smaller deposit, reflecting the higher risk to the lender.

M

Mortgagee: The lender in a mortgage arrangement.

Mortgagor: The borrower in a mortgage arrangement, meaning you.

O

OCR (Official Cash Rate): The interest rate set by the Reserve Bank of New Zealand, which influences, though does not directly set, the mortgage rates lenders offer.

Offset Account: A linked everyday account where your balance reduces the amount of your loan that interest is calculated on, without actually paying down the loan itself.

P

Pre-Approval: A lender's indication of what they would be willing to lend you, based on your circumstances at the time, before you have a specific property under offer.

Principal and Interest: A repayment structure where each payment covers both interest and a portion of the loan balance, gradually reducing what you owe.

R

Refinance: Moving your mortgage from one lender to another, typically to access a better rate, structure, or terms.

Refix: Locking in a new fixed rate with your existing lender once your current fixed term ends.

Registered Valuation: A formal property valuation carried out by a registered valuer, often required by a lender before approving a loan.

Restructure: Changing how your existing loan is set up, such as splitting between fixed and floating, consolidating debt, or adjusting your term.

Retained Earnings: Profit a business keeps rather than paying out, relevant to how lenders assess self employed and business owner income.

Revolving Credit: A flexible loan facility that functions similarly to a large overdraft against your home, with interest calculated daily on the reducing balance.

S

Sale and Purchase Agreement: The legal document setting out the price, conditions and settlement date for a property purchase.

Serviceability: A lender's assessment of whether you can comfortably afford loan repayments, based on your income, expenses and existing debt.

Settlement: The day ownership of a property legally transfers to you, and loan funds are released to complete the purchase.

Split Loan: A mortgage divided into separate portions, commonly fixed and floating, or fixed across different terms.

Stress Test: A higher, hypothetical interest rate lenders use to assess whether you could still afford repayments if rates rise.

T

Term: The length of time a loan, or a fixed rate period within a loan, runs for.

Title: The legal document establishing ownership of a property.

U

Unconditional: The point at which all conditions in a Sale and Purchase Agreement have been satisfied, making the agreement binding.

V

Valuation: An assessment of a property's value, which may be a registered valuation or a less formal estimate depending on what is required.

W

Wholesale Rate: Also called the swap rate, the rate at which banks borrow funding, which influences the fixed mortgage rates they offer, alongside their own funding costs and margins.

Frequently asked questions