Unless you are a ‘trust fund’ child or do not own your own property, you are likely to have a mortgage during your lifetime. Apart from your ability to earn an income, your mortgage is likely to be the financial arrangement that has the most impact on your financial success.
Therefore, managing your mortgage to reduce the interest that you pay over the life of the mortgage is crucial.
When you take out a mortgage we recommend that you apply a few important rules:
Assume a long term average interest rate of 7-7.5% will apply to the mortgage and then work out how much you can afford to borrow. When interest rates are low (5%-6.5%) it is easy to assume that interest rates will stay at this level for a long term.This is an easy way to get trapped into higher repayments if mortgage rates increase, and get yourself into financial trouble. Make sure that you take a conservative approach, so that your mortgage is sustainable.
If you get paid fortnightly, make your repayments fortnightly. Over 25 years if you pay half your monthly mortgage payment as a fortnightly payment, you are making 2 extra payments a year (26 fortnights, but only 24 half months). On a $350,000 mortgage, at 6% pa, you will repay your mortgage 4 YEARS earlier.
Don’t put in place a revolving credit mortgage (no matter how hard your lender argues that it works) UNLESS you are extremely disciplined.
Talk to your financial adviser to get recommendations on how much to fix and leave floating. This will depend on your personal circumstances and the market: whether you are likely to get extra money to be able to repay a floating rate mortgage, whether interest rates are likely to go up or down.
BE AWARE of the length of time that the mortgage is for. The longer the mortgage, the more interest you pay. By all means set the mortgage up for a 30 year time period, but then work out how much you can pay off and set it off to repay the mortgage as quickly as you realistically can.
Don’t lock yourself into mortgage payments that might become unsustainable if you have a change in circumstances, or if interest rates increase in the future. Leave yourself some flexibility.
Shop around between lenders There is a lot of competition these days between lenders. They are all interested in a GOOD QUALITY mortgage prospect. If you have a good stable income and a 20% deposit on your home, a good mortgage broker can get you very competitive interest rates. In addition, depending on the offers at the time, it is possible that you might get an inducement to go with a particular lender. This could range from payment towards legal fees, or a reward holiday or a TV for your new home. The key thing however is your interest rates.
Be aware of the security that you are giving the lender. Most lenders these days take an ‘all obligations’ mortgage over your property. This means that the property is used to secure ‘all your obligations’ to the lender. This is different to a ‘fixed sum’ mortgage, where you are only providing security to the lender for the amount that you have borrowed. Importantly, be aware of the implications of giving a personal guarantee for your mortgage. We recommend that you ask questions and be fully aware of the implications of the security that you are giving your lender.
If you are a first home buyer or a ‘second chance’ home buyer remember to use the KiwiSaver features to help you with your house purchase. These include the ability to withdraw your contributions from KiwiSaver to put toward your house and, if you are eligible a first home buyers grant.
Make sure that you have mortgage repayment or income protection insurance cover in place in case you get ill.
Make sure that you have best terms and conditions on a mortgage. This table shows the difference in how much interest you will have to pay over the life of a mortgage with different interest rates. It is worth putting the time and effort into getting the best interest rate. But remember, every time you change a mortgage, you have legal costs and possibly hassle involved with changing
Total amount you are repaying on the mortgage (monthly repayments)
Amount borrowed
5.5%
6.0%
6.5%
7.0%
7.5%
$350,000 repaid over 15 years
$514,763
$531,629.80
$548,797.64
$566,261.81
$584,017.79
$350,000 repaid over 20 years
$577,825.34
$601,802.09
$626,281.43
$651,251.11
$676,698.28
$350,000 repaid over 25 years
$644,791.87
$676,516.47
$708,967.52
$742,118.16
$775,940.74
$350,000 repaid over 30 years
$715,414.14
$755,433.66
$796,405.71
$838,281.14
$881,010.28
If you would like some assistance with making sure that your mortgage arrangements are working well for you, contact us by clicking here.
C
arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.
As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.
- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf
When a lender provides you with a mortgage, they want to make sure that they have good security if something was to go wrong. They need to protect themselves against default on the mortgage. They look at your income (servicing ability) for the mortgage and also how much they are lending you as compared to the valuation of the property (Loan to Valuation ratio or LVR).
Last year the Reserve Bank tightened the rules around how much lenders could lend to ‘higher risk’ borrowers – those with a LVR of more than 80% of their property. As a result a number of people found it more difficult to purchase a home.
Here are some tips to consider when you are checking where you are at with your mortgage:
Has the value of your property gone up recently?
If you have borrowed money with a LVR of 80% or more, and the value of your house has increased, now is the time to go back to your lender (or get a mortgage broker to assist you), to see if you can get better terms and conditions on your mortgage.
Is your mortgage on ‘non-residential’ rates?
This could happen if the property that you are purchasing is not zoned as residential or if you borrowed the funds for a business, or other reason (apart from your family home.) If you set up your lending properly, you can reduce these rates if you provide your home as security for the mortgage.Remember, the lender will want all security that they can get for the mortgage that they are giving you.The better security you can give them, the better your negotiating power.
Do you have a ‘revolving credit’ mortgage that may not be working for you?
We meet a number of people who have put in place a ‘revolving credit’ mortgage on the recommendation of the lender, and it just isn’t working for them.It takes great discipline to ensure that the balance of these mortgages reduces.We recommend that many people set up these mortgages on fixed rates or floating mortgages with specific repayments so that the mortgages actually reduce in value.
Is your lender the best value available for you?
If your income has increased, or the equity in your property has increased, you will be more attractive to lenders than when you first set up your mortgage.It might be time to talk to a mortgage broker and get them to see if you are likely to get a better deal at a different lender.
Should your investment property mortgage be on ‘interest only’ terms?
Most lenders put a time limit on ‘interest only’ terms for borrowing for residential property.During the Global Financial Crisis, many banks decided to end these interest only terms and required clients to pay Principal and Interest on their investment property loans.Now is a good time to review your situation, it might be that changing lenders will enable you to put those principal payments into another investment.
Have you used a QV as your property valuation as compared to a Market Valuation?
If your current lending is over the desired 80% LVR, you are likely to be paying more in interest than if you were under this ratio.One thing to consider is paying to get a Market Valuation on your home, which could value your home at more than the QV (Government Valuation.) By spending around $500 - $750, you could save yourself quite a bit in interest over the long term.
If you would like some assistance with making sure that your mortgage arrangements are working well for you, contact us by clicking here.
C
arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.
As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.
- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf
With the changes in the Reserve Bank requirements for lending to Loan to Valuation ratios of 80% or more (that is to people who don’t have a 20% deposit on their property) in 2013, more people are finding it difficult to get a mortgage.
Or maybe your credit record isn’t as good as you would like?
However, all is not lost. In the Diana Clement article below from the NZ Herald, she looks at the range of options available. These include second tier lenders, bridging finance and solutions for people with credit records that aren’t squeaky clean.
It is important to note that these solutions will come with additional costs to the borrower. These can include a fee to set up the mortgage, or higher interest rates. But as Diana notes, using these solutions can be the first step to get you into your property. After you have been able to get it set up and running, in a few years, your situation could be a lot better and you may be able to move on to a main stream lender, or renegotiate your terms and conditions, as we have outlined in the above articles.
If you would like some assistance with making sure that your mortgage arrangements are working well for you, contact us by clicking here.
C
arey is supported by Paul Swarbrick, Client Relationship Manager – who has in excess of 20 years experience in providing people with assistance in organising and managing their mortgages.
As the ‘accredited’ person, Carey will assist all our clients with the advice component, whereas Paul will be the day to day contact to help you fulfil all the requirements and will be the main liaison person between you and the lenders.
- See more at: http://www.moneyworksdirect.co.nz/blog/mortgages-use-us-to-get-the-best-value-for-your-or-your-family-and-friends/#sthash.4UF3fwxx.dpuf
