Making Your Bach or Crib Dreams a Reality
Owning a holiday home is part of the Kiwi dream for many professionals across New Zealand. Whether you're eyeing a beach bach in the Coromandel, a lake house in Queenstown, or a coastal crib in Otago, understanding your home loan options is the first step toward making that dream happen.
Purchasing a holiday property comes with different considerations compared to your owner occupied home loan. The good news? With the right mortgage structure and guidance from an experienced mortgage adviser, financing your getaway can be more straightforward than you might think.
How Holiday Home Loans Differ
When you're looking at home loans for a holiday property, banks and lenders typically view these differently from your primary residence. While you won't be living there permanently, most lenders still classify bach and crib purchases under residential mortgage products - though some considerations change.
Your borrowing capacity might be assessed differently. Lenders including ANZ, ASB, BNZ, Westpac, and Kiwibank will look at:
- Your existing mortgage commitments
- Total household income and expenses
- Whether you plan to rent the property occasionally
- The location and condition of the holiday home
- Your overall debt-to-income ratio
The loan to value ratio (LVR) requirements can also vary. While you might secure an owner occupied home loan with a 10% deposit or even a 5% deposit, holiday homes typically require a larger deposit. Most lenders prefer at least a 20% deposit for holiday properties, which means an 80% LVR.
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Deposit Requirements and Avoiding LEP
Speaking of deposits, this is where planning becomes crucial. With a 20% deposit, you'll typically avoid the Low Equity Premium (LEP) - also known as the low equity margin (LEM). This is an additional fee charged when your LVR exceeds 80%.
For a holiday home valued at $800,000, here's what different deposit levels mean:
- 20% deposit ($160,000): 80% LVR, no LEP
- 10% deposit ($80,000): 90% LVR, LEP applies
- 5% deposit ($40,000): 95% LVR, LEP applies (if available for holiday homes)
Keep in mind that low deposit home loan options like 90% LVR or 95% LVR are generally harder to secure for holiday properties. Most banks and lenders reserve these for first home loan buyers purchasing their primary residence.
Choosing Your Mortgage Structure
Once you understand the deposit requirement, it's time to consider your home mortgage structure. You have several options:
Fixed Rate vs Floating Rate
You can choose a fixed rate mortgage (with terms like 1 year fixed, 2 year fixed, 3 year fixed, or 5 year fixed) or a floating rate mortgage. Many buyers opt for a split loan or combination loan, dividing their borrowing between fixed and floating portions.
Fixed rates provide certainty around your repayments, while a floating rate offers flexibility for extra repayments without penalty. Your mortgage broker can help you understand current rates and special rates available from different lenders.
Repayment Options
Most holiday home buyers choose a principal and interest loan (also called a table loan), which gradually reduces your debt over time. However, some investors consider an interest only loan, particularly if they plan to rent out the property and claim tax deductions.
Home Loan Features That Make Sense
Depending on your financial situation, certain home loan features can add real value:
Offset Mortgage or Revolving Credit
These products let you offset savings against your loan balance, reducing the interest you pay. If you're not using the bach year-round and have fluctuating income, this flexibility can work in your favour.
Redraw Facility and Extra Repayments
The ability to make lump sum payments and access a redraw facility means you can pay down your mortgage faster when you have surplus funds, while still accessing that money if needed.
Working Out What You Can Borrow
Wondering "how much can I borrow" for your holiday home? A borrowing calculator or home loan calculator can give you a rough estimate, but speaking with a mortgage adviser provides a more accurate picture.
Your mortgage adviser will use a repayment calculator to show you what different loan amounts mean for your regular commitments. They'll also assess your total borrowing capacity across all your property loans and other debts.
If you already have a home loan on your primary residence, you might consider refinancing to release equity that could fund your holiday home deposit. This is where mortgage lending expertise becomes invaluable - structuring multiple loans to work efficiently together.
Understanding Mortgage Rates and Carded Rates
When comparing lenders, you'll see references to carded rates - these are the standard published rates. However, the actual interest rate and mortgage rate you receive might differ based on your LVR, loan amount, and relationship with the lender.
Different banks and lenders offer varying rates for holiday properties. Some might not distinguish between owner-occupied and holiday homes, while others apply slightly higher rates. Your mortgage broker has access to rate information across multiple lenders, helping you find suitable options for your situation.
Taking the Next Step
Purchasing a bach or crib is an exciting milestone. Whether you're looking at your first home loan for a holiday property or you're already an upgrader loan candidate with existing property investments, having professional guidance makes a real difference.
The property loan landscape involves many variables - from understanding LVR limits to choosing between fixed and floating portions of your house loan. A mortgage adviser can help you navigate deposit requirements, compare home finance options, and structure your home mortgage to suit your lifestyle and financial goals.
Ready to explore your options for financing a holiday home? Call one of our team or book an appointment at a time that works for you. We'll help you understand your borrowing capacity, compare rates across ANZ, ASB, BNZ, Westpac, Kiwibank and other lenders, and find a home loan structure that brings your bach or crib dreams within reach.