Revolving Credit vs Floating Mortgage Account: What’s the difference?
Most Kiwi homeowners are familiar with fixed-term mortgages—typically set for one to two years, often at a lower interest rate. But for those looking for greater flexibility or planning lump sum repayments, floating and revolving credit accounts are worth a closer look.
Although they sound similar, floating mortgage accounts and revolving credit facilities are not the same. Understanding the difference is key to structuring your mortgage in a way that best suits your goals.
What Do Floating and Revolving Credit Accounts Have in Common?
Both account types sit outside of fixed-term lending and operate on a floating interest rate—a rate that can rise or fall with very little notice. This rate is often influenced by movements in the Official Cash Rate (OCR), though it’s not tied to it directly. Historically, floating rates tend to sit about 1% to 1.25% higher than fixed rates.
So why would you choose a higher-interest product?
Simple: flexibility. Unlike fixed-term loans, both floating and revolving credit accounts allow you to make extra repayments at any time, without triggering break fees. This is especially useful if you’re expecting a bonus, commission, inheritance, or any lump sum you plan to use to reduce your mortgage balance.
For example, if you know you’re due to receive a $20,000 bonus in a few months, having that portion of your mortgage on a floating or revolving credit facility means you can repay it penalty-free as soon as the money comes in.
But which one should you choose?
Floating Account vs Revolving Credit: The Key Difference
The easiest way to distinguish the two is this:
Revolving Credit is like a large overdraft. You can spend money from it (often with an EFTPOS card or internet banking) up to a pre-agreed limit. It operates like a regular transaction account with your mortgage built in.
Floating Mortgage Accounts allow you to deposit extra payments, but retrieving that money can be less straightforward. Some banks allow easy withdrawals, while others require a full loan application to access the funds again.
In other words: Revolving credit = flexible in and out.
Floating account = easier to pay in, harder to take out.
Be Cautious with Floating Account Withdrawals
If you’re using a floating account to temporarily park funds—for example, as a buffer or to cover upcoming tax—you’ll need to understand your bank’s withdrawal policy.
Some lenders will let you transfer the money back out whenever you like. Others require you to reapply to access the funds, which may be impractical in a time-sensitive situation. If you're self-employed and storing tax payments in this account, it's essential to ensure you'll be able to retrieve that money when it’s needed.
Why Banks Limit Floating and Revolving Credit Sizes
Most banks place a cap—typically around $250,000 to $300,000—on how much of your mortgage can be on a floating or revolving facility. Why?
Because although a borrower might pay off the balance to $0, the bank must reserve the full amount in case it’s redrawn. That reserve ties up bank capital and impacts lending operations.
While the investor may enjoy the ability to purchase another property or act quickly on opportunities, the bank is absorbing risk without a corresponding return—especially if no interest is being paid.
When Should You Use a Revolving Credit Account?
Revolving credit suits borrowers who:
Want to deposit their salary directly and minimise daily interest
Are comfortable budgeting from one account
May need to redraw funds at short notice (e.g. for renovations or emergencies)
Since interest is calculated daily, even temporarily reducing your balance with incoming wages can save money. However, this strategy only works if you’re disciplined. Revolving credit can encourage spending, especially when you see a large credit limit available.
When Should You Use a Floating Mortgage Account?
Floating accounts are better for those who:
Plan to make a one-off lump sum repayment
Want to reduce interest costs but don’t need regular access to funds
Are budgeting separately from their mortgage
They’re commonly used by self-employed borrowers to store tax funds, or by homeowners planning to use a bonus or inheritance to pay off part of the loan in the near future. Just be sure to check withdrawal conditions, especially if you're using the account as a rainy-day buffer.
Can You Combine Both?
Yes—many borrowers split their mortgage across different structures:
Fixed term for the bulk (e.g. 80–90% of the loan)
A smaller portion on floating (to allow extra payments)
A revolving credit facility (to manage day-to-day cashflow)
Your mortgage adviser can help you determine the best structure based on your income, spending habits, and financial goals.
Make the Account Type Match the Job
The choice between revolving credit and floating mortgage accounts isn’t about which is “better”—it’s about which suits your purpose.
Need day-to-day access and flexibility? Revolving credit.
Making a one-off lump sum repayment and want to save interest? Floating account.
Want to be disciplined and not tempted to redraw? Stick to floating.
Used wisely, both account types can shave thousands off your interest costs and help you become mortgage-free faster.
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