Revolving Credit vs Floating Mortgage Account: What's the Difference?

This article distinguishes between two flexible mortgage options available to New Zealand homeowners. Both operate on floating interest rates that fluctuate with market conditions, typically running 1-1.25% higher than fixed rates.

Key Differences

Revolving credit functions like an overdraft, allowing borrowers to withdraw funds up to a pre-agreed limit using EFTPOS or internet banking. Floating mortgage accounts accept extra repayments but make fund retrieval more complex-some lenders permit easy withdrawals while others require a new loan application.

The Power of Salary Parking

The key benefit of revolving credit is "salary parking"-depositing your entire pay into the account and spending from it throughout the month. Because interest is calculated daily on the outstanding balance, every dollar sitting in the account reduces your interest charge.

How it works: Say you have a $50,000 revolving credit facility with a $30,000 balance owing. Your $5,000 monthly salary is deposited on the 15th. From the 15th onwards, you're only paying interest on $25,000 instead of $30,000-even though you'll spend that $5,000 throughout the month on living expenses.

The savings add up: On average, your balance might be $3,000-$4,000 lower throughout the month than if you kept salary in a separate transaction account. At 7% interest, that's roughly $250-$300 per year in interest savings-without changing your lifestyle or budget.

Discipline required: This strategy only works if you don't overspend. With easy access to funds via EFTPOS, some borrowers find themselves gradually drawing down the facility rather than paying it off. Revolving credit rewards disciplined budgeters and punishes the opposite.

Main Advantages

Both account types eliminate early repayment penalties, making them ideal for those expecting lump-sum payments. Extra repayments can be made at any time, without triggering break fees.

Bank Limitations

Most lenders cap floating and revolving facilities at approximately $250,000-$300,000 because banks must reserve the full amount regardless of current balance.

Which Should You Choose?

Revolving credit suits borrowers who:

• •Are disciplined with money and can track spending
• •Have regular income deposited to the account
• •Want to maximise interest savings through salary parking
• •Need flexible access to funds for renovations or investments

Floating mortgage accounts suit borrowers who:

• •Prefer separation between mortgage and everyday spending
• •Are making a one-time lump-sum repayment (inheritance, bonus, redundancy)
• •Want flexibility without the temptation of easy fund access
• •Don't want to manage daily cashflow through their mortgage

Many borrowers combine both structures with fixed-term mortgages for optimal balance. A typical setup might be $400,000 fixed for stability, with a $50,000 revolving credit for flexibility and salary parking.