What Is a Revolving Credit Account?
If you’re exploring your mortgage structure in New Zealand, you’ve likely heard of revolving credit. It’s a flexible type of home loan that functions a bit like a large overdraft. Instead of having your entire mortgage on a fixed repayment schedule, a portion (say $50,000 of a $500,000 loan) is set up as a revolving credit facility.
Any money you deposit into this account—like your salary or savings—reduces the balance you’re charged interest on. For instance, if your revolving credit limit is $50,000 and you’ve got $20,000 sitting in the account, you only pay interest on the remaining $30,000. It’s a clever way to make your everyday cash work harder for you.
How Is It Different from an Offset Account?
While offset accounts and revolving credit share similarities, there are important differences:
Revolving credit: All your income and expenses run through a single account. You directly reduce the loan balance with every deposit and pay interest only on the net amount.
Offset account: You link one or more savings accounts to your mortgage. The bank calculates your interest based on the mortgage balance minus your savings total. The money stays in the savings accounts, and you can separate funds for different purposes.
Some banks in New Zealand offer both, but not all do. Talk to your mortgage adviser to understand which structure suits your financial habits.
Who Should Consider Revolving Credit?
Revolving credit isn’t right for everyone. It’s best suited to:
Borrowers with strong budgeting skills
Those with variable income (like self-employed or commission-based earners)
Homeowners who want flexibility and plan to make extra repayments
Property investors needing access to funds for short-term use
It’s less ideal for people who find it hard to track spending or who are tempted to treat available credit like extra income.
Managing Revolving Credit Effectively
To get the most out of your revolving credit, consider setting up two separate bank accounts:
Your revolving credit account receives your salary and pays fixed bills, including your mortgage.
A second everyday spending account (topped up weekly via automatic transfer) helps you manage daily expenses and avoid overspending.
This structure keeps your revolving credit account balance high—minimising interest—while giving you a clear picture of how much you can safely spend.
Some savvy homeowners even pair this setup with a credit card: use the credit card for day-to-day purchases, earn rewards, and pay it off in full from the revolving credit account each month. This maximises the interest-saving period while keeping spending disciplined.
How Big Should My Revolving Credit Limit Be?
It’s tempting to make your revolving credit as large as possible, but it works best when sized to your realistic repayment goals. A good rule of thumb is to set the limit to what you think you can repay over 1–2 years.
For example, if you think you could chip away at $40,000 over two years through extra repayments or smart saving, set your revolving credit facility at that level. Keep the rest of your mortgage on a longer fixed term with a lower interest rate.
Over time, as your fixed-rate portion comes up for renewal, you may decide to shift more of it into revolving credit if you’ve been successful in reducing your balance.
Seven Strategic Ways to Use a Revolving Credit Account
1. Fund Renovations in Stages
Planning a kitchen upgrade or bathroom remodel? With a revolving credit facility, you can draw down only what you need as each stage of your renovation progresses. Rather than borrowing a lump sum upfront and paying interest on the entire amount, you’ll only pay interest on the portion you’ve used—saving money over the life of the project.
2. Bridge Finance for a Future Home Purchase
Thinking about buying off the plans or securing a section to build on later? Revolving credit can be a smart way to hold your deposit funds. You’ll have immediate access when it’s time to pay, but until then, your money works to reduce interest on your existing mortgage.
3. Smooth Cashflow for Investment Properties
Owning a rental can mean unpredictable expenses—repairs, vacancies, or rates. A revolving credit account provides an easy-access buffer to top up these costs without needing to rely on personal savings or expensive credit cards. It’s particularly useful for landlords juggling multiple property outgoings.
4. Emergency Fund for Job or Health Setbacks
Unplanned life events—such as redundancy, health issues, or a temporary business downturn—can seriously affect your income. A pre-set revolving credit facility acts as a safety net, giving you immediate access to funds when you need them most, without having to reapply for finance.
5. Short-Term Holding Account for Known Expenses
Got a wedding, school fees, or a big overseas trip coming up? Instead of keeping the cash in a standard savings account earning little to no interest, park it in your revolving credit account. This reduces your mortgage interest until the funds are needed.
6. Manage Fluctuating or Seasonal Income
If you’re self-employed, a freelancer, or earn commissions, your income might vary month to month. Revolving credit lets you deposit large payments when they arrive, then withdraw to cover expenses during leaner months—helping you keep your financial balance steady without stress.
7. Smarter Way to Fund Large Purchases
Whether it’s a second-hand car, home office equipment, or an unexpected vet bill, using your revolving credit can be more cost-effective than taking out a personal loan. Because you only pay interest on what you use, and the rate is typically lower than unsecured lending, it can be a savvy way to manage one-off costs.
The Pros and Cons at a Glance
Pros:
Save on interest by reducing your daily loan balance
Flexible access to funds without reapplying
No penalty for extra repayments
Ideal for irregular income or short-term projects
Cons:
Floating interest rates can increase without warning
Easy access to credit may tempt overspending
Blurred financial lines can make budgeting harder
No separate savings account to track progress
Is Revolving Credit Right for You?
Revolving credit accounts offer enormous potential for interest savings and repayment flexibility—but only if used wisely. If you’re financially disciplined and want to pay off your mortgage faster while maintaining access to funds, it can be a great option. However, if you’re likely to treat available credit as spending money, it might derail your goals.
The best results often come from pairing good structure with clear financial goals—and that’s where a mortgage adviser can help you determine whether revolving credit fits your strategy.