Introduction: The Great Interest Rate Obsession
In the New Zealand property market, there is a singular obsession that dominates dinner party conversations and news headlines alike: the interest rate. We track the Reserve Bank’s OCR announcements with the fervor of sports fans, and we celebrate a 0.1% drop as if we’ve won the lottery.
At Axico, we understand why. Interest is the cost of borrowing, and on a multi-hundred-thousand-dollar loan, every basis point counts. However, after decades of advising clients through high-interest environments and record-low cycles, we have come to a conclusion that often surprises first-time buyers and seasoned investors: The rate is the distraction. The structure is the strategy.
A low interest rate is a snapshot in time. A mortgage structure is a 30-year financial framework. In this deep dive, we explore why a poorly structured mortgage—even at a “market-leading” rate—can cost you six figures over its lifetime, and how a deliberate strategy can create genuine financial freedom.
The Bank’s Perspective vs. Your Reality
To understand structure, we must first understand the relationship between a borrower and a lender. As we state in our core philosophy: Banks represent themselves. We represent you.
When you walk into a bank branch, the person sitting across from you is an employee of a corporation whose primary goal is to manage risk and maximize return for shareholders. They are bound by the products and “appetites” of that single institution. If their bank prefers PAYE earners and you are a self-employed business owner with complex depreciation add-backs, they might simply say “no.”
More importantly, they will rarely suggest a structure that significantly reduces the total interest they collect over 30 years. They might offer you a “special rate” on a standard 30-year table mortgage, but they are unlikely to show you how to utilize a revolving credit facility to offset your daily cash flow against your debt.
Pillar 1: Structure Over Hype
A mortgage isn’t just a lump of debt; it’s a living part of your financial ecosystem. One of the biggest mistakes we see is the “all-in-one” fix. Borrowers fix their entire loan for two years because the rate looks good.
But what happens if your income increases by 10% in six months? What if you receive a bonus or an inheritance? If your entire loan is fixed, you are often limited in how much extra you can pay back without incurring “break fees.”
The Axico Approach: Split Lending. We often recommend splitting a mortgage into multiple “tranches.” Perhaps 40% is fixed for one year, 40% for three years, and 20% is held in a floating or revolving credit facility. This creates a “ladder” effect. Every year, a portion of your mortgage comes up for review. This gives you regular opportunities to adjust your strategy based on the current market without exposing your entire debt to a single point in time.
Pillar 2: Revolving Credit – The Double-Edged Sword
For a disciplined borrower, a revolving credit facility is arguably the most powerful wealth-creation tool in the New Zealand banking system. It essentially acts as a large overdraft where your income is paid directly into your mortgage account.
Every dollar that sits in that account—even if only for three days between your payday and your grocery shop—is a dollar you aren’t paying interest on.
However, we are very careful with this recommendation. As our content states: Used correctly, it’s powerful. Used poorly, it slows progress. If you treat a revolving credit limit as “extra money to spend,” you are simply extending the life of your debt. Our role is to assess your behavioral discipline. We look at your spending habits and your cash flow “buffer” to ensure that this tool works for your freedom, not your entrapment.
Pillar 3: The Accelerated Repayment Strategy
The math of compounding works both ways. Just as interest compounds your savings, principal repayments compound your freedom.
We often see clients who, when interest rates drop from 6% to 4%, immediately reduce their monthly repayments to the minimum required by the bank. This is a missed opportunity. If you are already comfortable paying the 6% rate, maintaining those same repayments when the rate drops means 100% of that “saved” money goes directly toward the principal.
On a $500,000 mortgage, keeping your repayments at the higher level can shave 7 to 10 years off the life of the loan and save you over $100,000 in interest. Small, disciplined decisions compound into massive results.
Pillar 4: Refixing as Leverage
A refix period shouldn’t be a reactive moment of stress where you click “accept” on a banking app. It is a strategic moment of leverage.
Because banks price differently through adviser channels, we often have access to rates and “cash-back” offers that aren’t advertised to the general public. More importantly, we review your refix annually. We ask: Has your risk profile changed? Is an investment property on the horizon? Does your insurance cover still align with this debt level?
The Self-Employed Complexity
If you run your own business, you know that your tax return rarely tells the whole story of your financial strength. One-off capital expenses, depreciation, and shareholder salary structures can make you look “risky” to a standard bank algorithm.
This is where advocacy matters. We know how to “add back” those one-off expenses and present your usable income clearly to the lenders who have the appetite for business owners. We speak the bank’s lingo so you don’t have to.
Conclusion: Building Freedom
A poorly structured mortgage is a weight around your neck for three decades. A well-structured one is the engine of your wealth strategy.
At Axico, we don’t just find you a loan; we build you a framework. We integrate your lending with your KiwiSaver and your protection strategy to ensure that your debt is working for your future, not against it.
Ready to move from a rate-focus to a strategy-focus? Let’s start with a conversation.