Greek Extravaganza Fundraiser 2022

Re-Fixing Your Loan

jonathan@simplyfinance.co.nz (Jonathan Watts) — Fri, 24 Mar 2023 01:26:35 GMT

Re-fixing your loan March/April 2023

Hear Jonathan's views on interest rates and re-fixing your loan at the moment.

Tips When Struggling With Repayments

jonathan@simplyfinance.co.nz (Jonathan Watts) — Fri, 24 Mar 2023 01:26:33 GMT

Tips When Struggling With Repayments

Jonathan has some advice for when making your loan repayments is becoming a bit of a struggle.

Getting Ready To Borrow

jonathan@simplyfinance.co.nz (Jonathan Watts) — Fri, 24 Mar 2023 01:26:30 GMT

Preparing to Borrow

Jonathan has some things for you to think about when preparing to apply for a property loan.

Interest Rates March 2023

jonathan@simplyfinance.co.nz (Jonathan Watts) — Fri, 24 Mar 2023 01:26:29 GMT

Interest Rates March 2023

Jonathan talks about the current interest rates.

Using an Adviser vs Going to a Bank Directly

Sun, 11 Dec 2022 22:51:23 GMT

Why use an adviser instead of approaching banks yourself?

With an adviser, you only have to answer all the questions and provide all the information once.

Greek Extravaganza Fundraiser 2022

donna@simplyfinance.co.nz (Donna Verey) — Mon, 14 Nov 2022 01:58:56 GMT

Fundraiser for Harbour Hospice

On 29 ^th October, some of the Simply Finance Team were delighted to attend the 2022 Greek Extravaganza fundraiser, at the Orewa Arts and Events Centre, in aid of Harbour Hospice. Simply Finance is very proud to be a Silver Sponsor of this wonderful event once again. A fantastic $28,850 was raised on the night, which now brings to $110,710 the cumulative total raised to date since the very first Greek Extravaganza in 2017.

250 people came together for an evening of traditional cuisine and wines from the sunny Island of Crete and celebrated the very special historical relationship existing between New Zealand and Crete which was forged in WW2.

The Simply Finance team were fortunate to win some of the fabulous raffle and auction items that were generously donated by many of the sponsors and local businesses.

A wonderful evening was had by all in attendance, and I think it’s safe to say the Simply Finance team will be heading along again next year.

About Harbour Hospice

Harbour Hospice is a specialist, palliative care provider for families living in the Hibiscus Coast, North Shore and Warkworth/Wellsford communities. They provide compassionate, free care working primarily with patients, families, whānau and carers in their homes, and also within their three hospice sites.

Their friendly and dedicated healthcare professionals include specialist nurses, doctors and family support teams. They are committed to supporting wellbeing in every way – medically, spiritually, psychologically and socially with an emphasis on helping people live every moment in whatever way is important to them.

Find out more about Harbour Hospice here https://harbourhospice.org.nz/

check out some of the current fundraising items for purchase in their shop at https://harbourhospice.org.nz/shop/

The Inflation Rate and Mortgage Interest Rates

Wed, 27 Jul 2022 03:57:11 GMT

The High Inflation Rate and Mortgage Interest Rates

Jonathan talks about the current high inflation rate and how that might affect your mortgage.

CCCFA Changes July 2022

Thu, 07 Jul 2022 04:34:59 GMT

Changes have been made to the CCCFA requirements for lending.

Hear Jonathan's views on the latest changes to the CCCFA requirements.

How much does an Adviser cost?

Fri, 10 Jun 2022 04:53:57 GMT

What does a mortgage adviser cost?

With Jonathan Watts

In the video below, Jonathan talks about how advisers work on your behalf and the costs involved.

CCCFA Update from Jonathan

Mon, 02 May 2022 05:45:22 GMT

What's happening with the CCCFA review?

In the video below, Jonathan comments on some of the information that has been coming through from the banks and media around lending regulations.

3 Ways to Turbo-Charge Your Loan Repayments

Wed, 11 Aug 2021 01:00:00 GMT

By Bhavesh Malani

Let’s face it: no one likes being in debt, but it’s near impossible to buy a home without it. Thankfully, there are some ways you can reduce your debt burden and make you mortgage-free faster.

Why Should I Reduce My Debt When I Can Afford the Repayments Right Now?

Good question, guy who writes my headings! Here’s why you may want to reduce your debt as fast as possible:

Reducing interest in the long run

Every loan has two components: principal (i.e. the amount you borrow) and interest (i.e. the cost of borrowing money). Most loans in New Zealand are amortized, which is a fancy way of saying the loan is broken up into small parcels, with a set repayment every month. A part of that repayment goes towards reducing your principal and the rest is comprised of interest payments, which don’t reduce the amount you owe but instead vanish into the deep, dark recesses of bank balance sheets.

Let me explain this further. Assume you have bought yourself a $1,000,000 house with a 20% deposit (yay!). That means you’ve taken an $800,000 home loan for up to 30 years. Assuming an average interest rate of 4.5% over those 30 years (based on historical rates , I’m being optimistic!), if you only made your minimum monthly repayment of $4,053.48 and nothing else, you would have paid just under $660,000 in interest alone. That $1,000,000 house is actually a $1,660,000 house! Assuming you bought this house at the age of 35, you’ll be repaying the loan until retirement.

You owe the most money at the start of your loan term, which means the interest component of your loan is also the highest at this point (as interest is calculated on the amount you owe). Remember: you’re making the same repayment every month, a portion of which is interest and the rest is principal. If your interest rate is high, there’s less money going towards reducing your loan! You can see this clearly in the table below: Interest makes up 74%, or $3,000 of your first repayment. Therefore, the higher the interest rate, the less principal you are able to pay off in the early years.

Interest rates are low, but they are rising

Thanks to record low interest rates, a mortgage has never been more affordable in New Zealand. In fact, the 1-year rate is so low that your interest component on the same loan would only be 48% of the total repayment in month 1.

The thing to remember here is that a mortgage is a 30 year commitment, and requires a long-term view. So let’s take a detour from home loans and do some back alley economics!

Interest rates dropped like a rock because the Reserve Bank of New Zealand (RBNZ) needed to stimulate the economy to prevent a depression in the wake of the COVID-19 pandemic. It does this by changing the Official Cash Rate (OCR), which is the base rate used to determine bank borrowing and savings costs. In a nutshell, if the economy is slowing and inflation is low, the bank reduces the OCR to make it easier for people to borrow money and boost spending and investment. If the economy is going strong and inflation is increasing towards 3%, the RBNZ will raise the OCR to make borrowing money more expensive and discourage spending. All signs now point to the sort of economic growth that hasn’t been seen since the end of World War 2, both domestically and overseas , which means that inflation - and interest rates - will probably rise appreciably in the years to come.

Interest rates are still low now, but they have already begun to rise, so it makes sense to prepare ourselves for a more expensive future by ensuring you’ve got less owing on your mortgage and less interest to pay.

So How Do I Reduce My Principal Faster?

There are 3 main strategies to achieving this. In all cases, the basic idea is to find ways to reduce the interest component on your repayments.

1. Make Extra Repayments

Obviously, the simplest answer is to pay more than you need to. Every extra dollar goes towards reducing your principal and thus reduces the interest component on your next repayment. This strategy has a few limitations:

1. It may not be affordable for everyone

2. If you’re on a fixed rate loan, banks may place limits on extra repayments that can be made without incurring early repayment fees

3. Floating rate loans have no limits on extra repayments, but the interest rates are often a lot higher than fixed rate loans, which increases the minimum monthly repayment

4. You may not be able to redraw the extra repayments made in an emergency.

Certainly, if it’s affordable and possible to make significant extra repayments on your loan, this is the most straightforward way of paying down your loan quickly. However, there are some significant disadvantages, especially in terms of your cashflow. You wouldn’t want to put all your money into your home loan only to come up short for large, unexpected expenses. Which takes us on to our next method...

2. Use a Revolving Credit Account

A revolving credit account is like a giant overdraft, but the key difference is that while your vanilla overdrafts are unsecured, the revolving credit facility is a loan that is secured by your property. As the bank holds an asset (your property) as a securit, the loan is classified as a lower risk and therefore attracts a lower rate of interest compared to a standard overdraft. The interest rate is not fixed and is subject to change, and is higher than fixed rates. However, this is outweighed by the significant benefits of this account:

1. The repayments are interest-only, which increases your cash in hand every month

2. You can deposit your savings into the revolving credit account, reducing the overall loan balance. Interest is calculated daily based on the outstanding balance, so the more money you put in, the less interest you pay. Remember, reducing interest is the name of the game!

3. As it is a floating loan, there is no limit on how much money you can put into the revolving credit account

4. You are able to redraw funds up to your limit to fund large expenses such as a subsequent property purchase

If you are the sort of person who can save a fair chunk of your income, it makes sense to use your savings to reduce the overall interest paid on your home loan. You can even combine this technique with the one above, by saving through the year and making a large lump sum repayment on the fixed portion of your loan, before refixing and starting again.

The main risk associated with a revolving credit lies in the ambiguity of how your account balance is preaented. Let’s say you have a $100,000 revolving credit facility, and you have saved $100,000 (go you!). Your loan is effectively paid off and you are charged no interest. When you log on to online banking, you will see you have $100,000 available to spend. What you don’t see there is that every cent you draw from that account will incur an interest charge, as you are effectively redrawing your loan. It sounds simple, but it is incredibly easy to lose track of how much you owe when you have a large revolving credit account. There are a few good strategies for avoiding these pitfalls, which I will share in a future post. Note that banks reserve the right to recall revolving credit facilities at their discretion.

It’s pretty evident from the above that revolving credit accounts may not be everyone’s cup of tea. If you’re the sort of person who wants to have a set monthly payment while also being able to use your savings to reduce your interest burden, the next account might be the one for you...

3. Offset Account

An offset account is often confused with a revolving credit account, but there are some key differences. Firstly, while revolving credits are interest only accounts, an offset account is more like a traditional floating rate home loan with a repayment comprised of principal and interest. Revolving credits tend to be all-in-one affairs, with everything sitting in one account. Offset accounts are cleaner in that regard, with a separate account for your offset home loan, which is then linked to a number of your (or in some cases, your family’s) savings accounts. The savings balances in these accounts “offset” the amount of the loan that attracts interest. Let’s look at a couple of examples, assuming you have a $50,000 loan on a 30 year term, with an interest rate of 4.55% p.a.:

Case A - $0 savings balance: Your monthly repayment will be $254.83. As you have no savings, in your first month you pay interest on $50,000, which is $189.58, or 74.4% of your monthly repayment.

Case B - $30,000 savings balance : Your monthly repayment will still be $254.83, as this is calculated based on the total amount outstanding. Because you have saved $30,000, interest will be charged on ($50,000-$30,000) = $20,000, and so the interest component will be $75.83, or 29.8% of your monthly repayment. Calculated across your total loan of $50,000, your interest rate is effectively 1.8% p.a.!

Case C - $50,000 savings balance: As before, your monthly repayment remains unchanged at $254.83. With $50,000 saved, interest will be charged on ($50,000 - $50,000) = $0. You therefore pay no interest on this loan and every single cent of your repayment goes towards repaying your principal!

Obviously, case A isn’t ideal because you pay far too much in interest for an offset account to be worthwhile. If you’re a good saver and have some funds left over after your property purchase, you may look at starting with Case B (offset loan greater than your total savings) and saving enough every month to end up in Case C, which is where your loan is fully offset.

The great advantage of offset loans is that you save on your interest payments while keeping your savings and loan accounts separate. You can make lump sum repayments above the minimum amount and redraw them, just like you would with revolving credit. However, your linked savings accounts will not accrue interest – which hardly makes a difference as savings interest rates are near enough 0% at the time of writing. Furthermore, offset accounts are slightly more expensive than fixed rate loans and revolving credit loans, but are often more efficient than extra repayments at reducing your loan balance.

Summary

In essence, the key to paying off your loan faster lies in finding ways to reduce the interest component of your loan, whether it is by making extra repayments or using your savings to reduce the interest payable.

There is no one-size-fits-all solution, however. The right product for you depends on factors such as your risk appetite, your financial goals, your plans for the near future and how much free cashflow you have available to contribute towards the above strategies. To find out which method is best for you, call me for a free, no-obligations discussion on how you can turbocharge your home loan repayments!

The Five Things You Need Before Your Loan is Approved

Wed, 27 Jan 2021 01:41:00 GMT

By Bhavesh Malani

Let’s talk about how lenders assess loan applications, and what that means for you as a potential borrower. Note that we’re only going to discuss the big picture here: each lender has their own internal criteria, which is beyond the scope of this article (and above my pay grade!). The general criteria are referred to as the 5 C’s or 5 Canons of Lending (that’s canon as in laws or criteria).

This refers to your ability to repay the debt, not whether you’re still using the Covid Tracer app (side note: use the Covid Tracer app!). This usually involves a credit check, as well as things like your assets and savings relative to your age; your occupation; residency status and stability, spending patterns, etc. If there are any red flags e.g. unarranged overdrafts, missed payments, multiple trips to the casino or a decreasing savings balance, the lender may request more information or refuse credit entirely.

If you are planning to apply for a loan soon and have less than ideal account conduct, you should focus first on repaying your existing debts and improving your savings habits. A home loan is the biggest financial responsibility most of us will ever undertake, and lenders want to be assured of timely repayment.

2. Capacity

This tests your financial strength and ability to repay the loan. Lenders take your total net monthly income and deduct your fixed commitments, such as existing and proposed loan repayments, rates, superannuation, etc. They then deduct your essential and discretionary expenses and assess the remaining surplus. If there is enough money left over at the end of the month, the lender is satisfied that you will be able to meet your proposed loan commitment. The proposed loan repayments are tested at an interest rate that is far higher than what you would actually pay, so there is a fair degree of conservatism in the numbers used by the lender. This ensures that in case rates increase or your circumstances change, there is enough buffer for you to continue making repayments.

Your capacity is the most controllable of the 5 C’s on your part, as it relates to your spending habits. Obviously, if you reduce your spending, you’ll increase your surplus income and be able to service a higher loan. Keep in mind, however, that banks maintain a standard living expense schedule based on the number of adults and dependents in your application. If your family only spends $1,500 per month, but the bank’s standard figure is $2,300, the higher number will be used when calculating your surplus income. Beyond a point, reducing living expenses on things like food, transport, utilities, does not affect your borrowing capacity (although it still improves your actual cash flow!). However, reducing discretionary costs e.g. private education, donations, gym memberships, cable TV, etc. can make a dollar-for-dollar difference in your monthly surplus!

You can also consider reducing the limits on your credit cards and/or overdraft facilities, because as far as the lender is concerned, it doesn’t matter if you have anything owing against them, or if they’re paid off in full every month. The lender will consider a percentage of the limit (usually 3-5%) as a fixed monthly expense to cover interest payments on those facilities. For example, if you had a credit card with a limit of $10,000, the lender would assume you spend $300 in credit card fees every month! If you only ever spend $2,000 on the card every month, you could easily reduce your limit to $5,000, increasing your monthly surplus by $150 while still leaving sufficient buffer in your credit card limit for unforeseen expenses.

3. Conditions

The availability of credit depends on the regulatory and economic climate, as well as monetary policy. At the time of writing, the Reserve Bank has reduced the Official Cash Rate (OCR) to an all-time low of 0.25% and introduced a Funding for Lending Program (FLP), both of which have enabled banks to lower their short-term mortgage interest rates to near 2% per annum.

However, the massive increase in house prices over the past year has also caused banks to require higher deposits in anticipation of the Reserve Bank reinstating the Loan to Value Ratio (LVR) limits. Uncertainty around the sustainability of the post-Covid economic recovery is likely also to inform future credit decisions made by the banks.

4. Collateral

Although you can no longer promise your first-born child to the lender (PC gone mad, I say!), you still need to provide some form of security so that, in the event you are unable to repay your loan, the lender can recoup their investment by selling the security. Most commonly, the house you purchase is the security. It should be noted that lenders in New Zealand are extremely reluctant to foreclose on homes: it is far better for them to earn interest for 30 years than to go through the process of a mortgagee sale for close to break-even value. It is precisely because of this reluctance (and the Responsible Lending Code) that the main banks are as conservative as they are in assessing potential borrowers. While it may be frustrating for a lot of people looking to get their feet on the property ladder, it does also mean that once you meet the criteria, you are in a very strong position to repay your loan over the long term.

5. Capital

Show me the money! Lenders require a minimum deposit (capital) depending on the type of dwelling (existing property, new build, leasehold, vacant land, apartment, etc.) and the purpose for purchase (own occupation, rental investment, development, etc.). An applicant’s capital and collateral represent their “skin in the game”. If the lender perceives a higher chance of the borrower being unable to meet their obligations(such as with an investment property), they will require a higher deposit to cover this risk.

As you can see, lenders have a great deal of discretion in assessing a borrower’s ability to repay the loan and their final decision often rests on issues of character or conditions. Lending criteria are constantly changing, and it can be difficult for most to stay abreast of developments. That’s why it helps to speak to a mortgage adviser. It’s our job to stay in the know and to advocate for our clients when seeking lending. If you have any questions or just want to know how much you could borrow, get in touch with me for a no-obligations consultation!

Disclaimer: The above is an opinion of the author and must not be construed as individualised financial advice. In all cases, before making any financial decisions, it is recommended that you seek individual advice relevant to your situation.

How do I Save a Deposit for My First Home?

Sun, 13 Dec 2020 03:24:00 GMT

If, at the end of March 2020, someone had told me that the median house price in New Zealand would be up over 15% year on year , I’d have had their head checked! Thanks to the unprecedented stimulus provided by the Reserve Bank, many Kiwi homeowners avoided being forced into the sale of their most valuable assets. Rising house prices and stable employment make people feel richer and boost spending, so on that front it can be considered a job well done in preventing the worst economic outcomes of the pandemic.

However, it’s not all smiles and sunshine in the property market. The massive run-up in prices has left those looking to buy their first homes needing even larger deposits in order to secure financing. In a world where the median house price in Auckland is around $1 million, how can someone come up with a deposit for a first home?

As with any prickly issue, it’s essential to first define the problem, set the objectives and then generate possible solutions.

Step 1: Determine the Deposit Required

How much money do you need to buy your first home? Is a 10% deposit enough? How about 20%? Or is it now 30%?

At the time of writing, the situation is rather fluid, as the RBNZ has commenced consultation on reinstating Loan to Value Ratio (LVR) limits from March 1, 2021. Banks have already begun tightening their lending criteria. For an owner-occupied home, you’ll generally need a 20% deposit, but you might be able to get financing with a smaller deposit in some circumstances. Note that with smaller deposits, lenders may charge you a slightly higher interest rate (a Low Equity Premium) and/or a fee for Lender’s Mortgage Insurance. The more you borrow, the higher your repayments, so the minimum deposits must not be seen as a target. Rather, they are a threshold that needs to be crossed in order for a lender to consider your application for finance.

Adjust Your Expectations

If you live in any of the major centres, your first home is unlikely to be the quarter-acre Kiwi dream. Fortunately, there are a number of smaller properties that would be well within budget for those willing to adjust their expectations and think long term.

Remember: you’re buying your first home, not your dream home! You’re merely taking the first step on a long journey in property investment, and let’s face it: every home is an investment regardless of whether you buy 1 or 100. If that wasn’t the case, most people could save themselves hundreds of thousands of dollars by renting forever! It is far better to buy something smaller and more affordable now than to stretch yourself beyond your limits just so you can have that 4-bedroom home with a backyard now. An affordable first home:

Consider New Builds

If the Reserve Bank reverts to the LVR restrictions as they stood pre-COVID, lending for new builds (bought from the original developer) will be exempt, so you may still be able to buy a home with as little as a 5% deposit. Of course, as you are borrowing more, your mortgage repayments will be higher than they would have been with a larger deposit. As always, you will have to meet the bank’s lending criteria, so the minimum deposit may be determined by your ability to repay the loan. There are a number of advantages to purchasing new builds:

Check Eligibility for Kainga Ora’s First Home Loan Scheme

If you meet certain criteria (including and income and house price cap, as well as the bank’s own lending criteria), you may be eligible for a First Home Loan with as little as a 5% deposit. Note that the bank is likely to charge you a higher interest rate (a Low Equity Premium) and you will be charged 1% of the loan amount as a Lender’s Mortgage Insurance Premium (this can be added to the loan)

Step 2: Sources of Deposit

Now that you’ve determined how much you need, it’s time to figure out what you have. Your hard-earned savings are the most obvious source of funds for your deposit, but there are a number of other avenues you may consider to fund your first home purchase.

First Home Grant

If you have been a Kiwisaver member for at least 3-5 years, you may be eligible for a First Home Grant . If you buy an existing home, you could get $1,000 per year for each year of membership (max $5,000) and in the case of a new home or vacant land, it’s $2,000 per year (max $10,000). Once again, there are some clear incentives for buying a new home.

Kiwisaver

If you have been a Kiwisaver member for at least three years and are a first home buyer, you may be eligible to withdraw your Kiwisaver savings (minus the $1,000 minimum balance) to fund your deposit. Do note, however, that your Kiwisaver accounts are invested in a managed fund, the value of which may fluctuate with the market.

As seen during the immediate aftermath of COVID-19 border closures, you may lose a significant portion of your Kiwisaver investment in the event of a stock market crash, leaving you with less than you need to fund your purchase. If you are considering using Kiwisaver towards your deposit, it is advisable to budget on a conservative figure (e.g. 80% of your available balance) to protect you against any nasty surprises between loan approval and the date of settlement.

Other Assets

Consider any other assets you may want to liquidate in order to get yourself over the threshold. For example, if you have a relatively new car, you may be able to downgrade to an older, cheaper model and use the leftover funds. You may also have your own investments in stocks and bonds that you might be able to cash in. It really depends on what you have and what you are willing to trade.

The Bank of Mum and Dad

When all else fails, call mum and dad! Increasingly, Kiwis are relying on their parents’ wealth – often in the form of equity in their homes – to fund a deposit for their first home purchase. There are a number of ways to do this, including gifting, guarantee, loan agreement or buying the property together. Whichever option you choose, you need to be clear if the money is a gift, a loan or a joint investment, and it’s best for both sides to seek independent legal advice to avoid heartache down the line. A chat with your mortgage adviser will help you sift through the options and select the best one (if any).

Step 3: What Else Must I Consider?

Woohoo! You’ve scrimped, saved, begged, borrowed but (hopefully!) not stolen enough smashed avocados to get yourself that deposit for your first home! But wait…there’s more!

Affordability

You need to consider your ability to repay your loan, because the bank certainly will! Banks stress-test their lending by using a higher interest rate than they will actually charge you. For example, the lowest 1-year rate right now is around 2.39% p.a., but some banks are testing their loans at close to 6.5% p.a.! This proves to them that you can continue to pay the loan even if interest rates rise, if your income reduces or your fixed costs increase. It is advisable for you to do the same when calculating your budget, as interest rates won’t remain at all-time lows forever, and you don’t want to live paycheque to paycheque in your beautiful new home!

Paying down the loan faster

A portion of every repayment goes towards paying off the principal (what you borrowed from the bank) and the rest is used to pay off the interest. In the case of a table loan (which is the sort of home loan most of us get), the interest component is the greatest at the start of the loan term and reduces with time. At the start of a 30 year loan at present interest rates, more than half your monthly repayment is interest! As far as repaying your loan goes, this means more than half your repayment is essentially vanishing into the ether.

If you are in a position to do so, you may want to structure your loan so you can make extra repayments in order to pay off more of the principal. This is especially helpful if you expect your circumstances to change in a manner that affects your disposable income, such as starting a family, returning to study, etc. Paying off more when you can afford to do so reduces your required repayments down the line, and most importantly, reduces the interest you pay over the life of the loan!

So there you have it: a primer on ways to rustle up your deposit for your first home. It’s a long and winding road, but ultimately a rewarding one. As with any investment, there is an element of risk, which we try to mitigate by stress-testing our ability to pay off the loan during tough times. Remember: the market value of your home may fluctuate, but you’ll only lock in a loss if you have to sell in a property slump. If you have the power to hold on to your home in tough times, you are more likely to reap the considerable rewards that property investment has to offer.

Buying your first home can be a daunting task, with financing being just one (major!) component. There’s no need to do it alone: a call to your mortgage adviser can help take away the stress of hunting for the best deal on mortgages, and allows you to focus on the all-important house hunt. For a discussion on how you can source a deposit for a home loan and much more, book an appointment with me for a free, no-obligations consultation.

Bank Support Packages

Tue, 07 Apr 2020 05:19:29 GMT

Extraordinary times aren’t they!

The banks have been slowly announcing what their support packages will be for home owners following the government’s announcement of mortgage holidays. Each bank is approaching it slightly differently but in general terms the following options are available to mortgage holders.

Option 1 - Mortgage Payment Reduction.

If you are paying more than minimum fortnightly/monthly loan payments in order to clear your loan faster you could reduce these payments to the minimum possible under your current loan term. By loan term I mean the number of years it will currently take to fully repay your mortgage. Or, if you will finish repaying your mortgage in less than 30yrs, you could seek to extend your repayments out to 30yrs.

Option 2 - Interest-Only.

You can reduce your fortnightly/monthly payments by only paying the interest on the loan balance for the next 6 to 12 months (bank discretion). To work out what your payments would be is an easy calculation: take your loan balance and multiply it by the interest rate and divide the answer by either 12 (monthly) or 26 (fortnightly) to get the payment amount.

EG: a mortgage of $500,000 x 3.05% = $15,250 pa. Which equals $1,270.83 per month of $586.53 per fortnight. Once you come out of the interest only period, your loan repayments will increase because you will now need to repay the mortgage over a shorter period of time (eg: 1yr less).

Option 3 - Mortgage Holiday.

This should be a last resort but don’t be overly concerned if you have to do this. The old saying “needs must” should be kept in mind which basically means if your situation means you can’t do anything else, then this what you have to do.

Banks are offering a 6 month deferral of both principal and interest OR in some cases just your interest costs (you would keep paying the principal amount). It will provide massive immediate relief, however your interest will still accrue and your repayments will increase immediately after the ‘holiday’. The interest that should have been paid each month is added to the loan on a monthly basis, so you will end up paying interest on interest as each month passes. Plus any deferred principal amounts will also be added to your loan balance. You will need to keep making loan repayments until any deferral is processed with your bank. Note, that this option is not available on revolving credit facilities.

If you need assistance or advice feel free to give me a call or email me.

Answers to Some Current Concerns

Tue, 31 Mar 2020 04:19:29 GMT

Extraordinary times for us all and we are each living our own “Groundhog Day” for the next month, at least. A great deal has happened in a very short amount of time and everyone has questions about property and finance. I’ve attempted to cover off the key questions in this article in bit-size pieces.

What if I can’t pay my mortgage?

The Reserve Bank and government have announced assistance packages for those of us who no longer have sufficient income to pay our loans. The banks are working through the implementation of this and are receiving a huge number of calls. Your mortgage adviser can also help. In short there are interest only options and mortgage holidays available but be aware that both of these options will extend the time it will take to repay the entire loan.

Will property values drop?

Maybe, but not by that much. ANZ are predicting a potential drop of 3.5% this year due to the recession triggered by Coivd-19. However it’s important to remember that this is only relevant if you are intending to wait between selling and buying (IE: several months) as that could see you transacting in different real estate markets. Plus it’s worth noting, the climb out of the GFC around 2010 saw property prices recover quickly. Buying and selling in the same market is the key.

Will interest rates drop?

The floating rate has and banks have finally moved on lowering their fixed rates a bit. The 1yr and 18mth rate offer the best available. Rates are predicted to stay lower for longer now and we may yet see another small reduction. Regardless, servicing a mortgage has never been cheaper. The banks still face the dilemma of trying to raise funds using “attractive” deposit rates while growing market share with attractive mortgage rates.

Will lending become harder to get?

For those in certain industry sectors the short answer is yes because their employment has been affected and the recovery in their sector may take longer EG: travel and tourism. The Reserve Bank has eased bank requirements and along with the government are pulling all the levers to get the country through this time in the best shape possible. Banks are still open and ready for business however right now, they are handling a huge number of queries around mortgage relief.

Should I Still Buy A House?

The short answer to this is that there is really not much difference between having to keep paying rent and paying a mortgage from a risk perspective - both have to be paid wherever you are living. Property still remains the best asset purchase you can make. The challenge now is that many first home buyers have seen a chunk of their deposit evaporate from their KiwiSaver funds which may delay their ability to buy. But this is another place for a timely reminder. When you first invested in a “growth or balanced-growth” type fund, your adviser should have explained that markets go up and down. When this current volatility is over, economic activity will accelerate again and those funds will perform nicely.

I really like what Tony Alexander (ex BNZ Economist) had to say:

“Our economy has been placed in a state of suspended animation. The government is able to pick up the economy and time shift it. They can freeze the things we know usually happen during a recession and only let them happen once again down the track when the recovery is underway and the drive for them to occur will not be there to the same degree."

While housing activity has virtually ceased -

1. Interest rates are record lows and heading lower and will be there for years.

2. We enter this period without a boom in housing debt.

3. Banks remain well capitalized and look like they are about to receive even more support for lending from the Reserve Bank.

4. China shows us that if we implement early enough lockdowns/self-isolation can work.

5. The shortages are there, and now they will get worse because all house building is now on hold for 4 to 8 weeks.

6. There is fiscal stimulus coming and the Minister of Finance has even told us when – in the May 14 “Recovery Budget”.

Stay safe and stay sane.

Why Use a Mortgage Adviser?

Fri, 14 Feb 2020 04:19:29 GMT

Knowledge and Simplicity

Things are constantly changing across the banking sector and while there is plenty of money sloshing around the world looking for a home where it can earn a good return, banks have continued to tighten lending criteria. The main driver is about not allowing people to take on too much debt that they are unable to properly pay for and ensuring borrowers have a clear plan to handle any debt after they stop working.

All very commendable and sensible in the scheme of things but it can be very frustrating when you are trying to borrow money to purchase a home or invest in a property that you know is a good deal and you also know you can pay for it. Banks think differently to a potential borrower and have a very different risk appetite.

That’s why a mortgage adviser is your best option when looking for a loan. Three words come to mind when I think about what we do – knowledge, experience and simplicity .

Knowledge about the lending environment, where to find the money, what will work and what the best available rates are. And that’s just the start because everyone handles their finances differently and everyone’s circumstances vary.

Simplicity in that we will meet you at a time and place that works for you – during the day or “after hours”. We fill out one lending form and gather your information once, whereas if you start the search yourself, you will asked to fill out each banks form and provide the same information in each case. More proof is required these days so don’t be surprised if your mortgage adviser comes back asking for another document or two.

Experience When a mortgage adviser approaches a lender we take your personal circumstances and work to mitigate any problem areas and provide sound reasons around why the lending should go ahead. We know which bank or non-bank lender we should take the application to and who will be assessing it. Banks know the various mortgage advisers/groups and reputation counts! Reputations are built on the type of applications, the quality of the application, the knowledge of the mortgage adviser and the relationships he or she builds inside the lending organisations. And like all reputations, they can be tarnished fairly easily.

So a good mortgage adviser is the person who can help you navigate your way to a loan these days. It’s not a guarantee as there is a lot that goes into each deal, however we/they are your best chance!

Give me a call and let’s see how I can help you.