Do you have a mortgage repayment strategy?

Financial commentators are now starting to talk about inflation and as a consequence, interest rate increases, which in turn will mean higher mortgage repayments each week/fortnight/month.

We have already seen the long-term rate begin to move upwards.  A month ago, you could fix for 5 years @ 2.99%, but now the 5-year rate is heading towards 3.5%, provided your mortgage is under 80% of the loan to valuation ratio (LVR). If your loan is over 80% of the LVR then it’s closer to 4%.

An important part of my role as a Mortgage Adviser/Broker is to ensure that you have a mortgage repayment strategy that works for you. This includes making a recommendation regarding how to structure your loan repayments for your situation.

I have found that many people just look for the lowest interest rate and fix their mortgage for whatever term comes with that rate.  Until recently that has been an ok strategy as for so long, rates have been steadily decreasing. Now with the upwards pressure coming on, it is very important for you to consider your longer-term financial situation and future goals. What will happen when your loan comes off the fixed-rate and that you have considered how to reduce your mortgage more quickly?

Many first home buyers will fix their entire loan for an initial one/two-year period as paying the minimum for the first year or so of their new mortgage allows them to adjust to additional costs they will face as a homeowner, such as rates, house insurance, and risk insurance.  And this is ok, provided you know why you have adopted the structure you have and know that when the initial fixed-rate period ends that you again, carefully consider your options and do what you can do minimise the interest you will pay over the term of your loan.

A mortgage strategy should be a well-thought-out plan that suits your situation, protects against the future higher home loan rates, allows you to pay the home loans off faster, and is flexible enough to let you adapt the repayments for future events.

As part of my service to you, I will ensure that you understand how important this part of the process is and that you understand how to reduce your interest costs over time.

The key is to be aware so that you make good decisions now to benefit you in the longer term.

We generally suggest that you do your calculations on affordability at higher home loan rates to ensure that you can afford those, and then it’s always a good idea to adopt those repayments to pay the mortgage off faster while rates are low.

Most lenders just suggest you put the loan on the best-fixed term rate and over the longest term which of course benefits the lender as the longer the term of the mortgage the more interest you pay. As I mentioned earlier, it is ok if you do this for the first year or so if you are a first home buyer, BUT, it should only be for a defined time and be part of your overall strategy.

Example: you get a mortgage for $450,000 and the average home loan rates are about 2.85% If you fixed the entire loan for 30-years at this rate then your repayments would be about $429 per week. This will seem ok at the time however, what happens if rates increase to 4%.  This means your repayments will increase to $495 per week – an extra $66 per week!

If these rates are due to inflation, it will mean that you may have overall higher living costs while your incomes may not have increased. So it’s important to factor some leeway into your mortgage payments while rates are low.

If you can, it’s a great idea to pay more than you need to now while you can. This will build in a buffer against the day when higher home rates become a reality.  In the meantime, it helps pay off your mortgage faster and it reduces the term of the loan plus it saves you a lot of money in interest costs!

Graph to see interest savings Seeing the reality

Seeing what you can actually achieve by being proactive with your loan strategy is usually a big incentive for most homeowners who have a mortgage.  With this simple strategy, you are paying the home loan as though the interest rates were already at 4.00% but while at the lower interest rate (average 2.85%) you are able to make extra payments that go straight off the loan balance and if this was sustained would cut nearly 6 years-years off your mortgage term and save you almost $46,654.

The Right Loan Structure

In most cases, I would definitely not recommend you just lump all of your mortgage into one loan. To give you the best advice for your situation, I would really want to understand your goals and expectations for the short, medium, and long term. The example above was to show you an example of how you should factor in the possibility of higher interest rates and the impact of adjusting to the higher repayments now.

Unsure? or Confused?  No problem – just contact Trish for a no-obligation chat to talk through your options. Feel free to reach out at 027 436 8367 or click here.

Remember my service is FREE!

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The First Steps………..

Every journey begins with the first steps and the good news is your mortgage adviser will be able to ensure that you know how and when to take those steps!

As a mortgage adviser, my passion is helping first home buyers!

Getting ready to become a first home buyer is important. There is quite a few boxes to tick before you are able to get your first home loan approved.

What Banks look for from First Home Buyers

Deposits – most banks would prefer you to have a 20% deposit to buy your first home, however, the good news is that a good mortgage adviser will often be able to source mortgages for people who have less deposit than this. 

Also, if you qualify, you may be eligible under the First Home Loan Scheme. Included in this scheme is the First Home Grant which may mean you can qualify for FREE money. For a couple, this means: up to $10,000 for an existing home and $20,000 for a new home! 

Your deposit can be made up of, your KiwiSaver funds, (all apart from $1,000), the first home grant, cash savings, family assistance by way of a gift.  

Income – the lender needs to be comfortable that you can afford the mortgage repayments.

  • They consider your income and look at:

    • How long have you been with your employer? TIP: don’t change your industry if you are looking to purchase in the next 12 months!

    • How long you have been in the same industry?
    • Do you have a stable history of employment?
    • Repayments are calculated at a much higher rate than the market rate to ensure that if rates increase you can still afford your mortgage payments.
    • You can sometimes use the income from a flatmate or boarder. 

Credit History – It is very important to have good credit history if you wish to get a mortgage. This becomes even more significant when you want to borrow more than 80% of the Loan to Valuation Ratio. In New Zealand, most banks and non-bank lenders will rely on your credit report which shows a credit score for you.

If you have had credit issues in the past, including unpaid fines it is a good idea to check your own credit record.  You can read how to do this here

Remember every time you enquire about borrowing money, there will be an enquiry loaded against your credit score, whether you borrow funds or not. Lenders will be concerned with too many enquiries on your credit score so don’t take this lightly.  Talk to a mortgage adviser first.

Your mortgage adviser is aware of this and will ensure that any credit enquiries on your credit score are limited.

Bank Account Conduct – As part of the due diligence for a mortgage the lender will review your account conduct. They are looking to ensure that you have disclosed all debts and other financial commitments, but they are also looking at how you manage your bank accounts. Your mortgage adviser will help you understand how to “clean up” your accounts if this is required, as part of “getting mortgage ready”. You must have a record of paying your bills on time, every time.  This includes not missing a credit card payment and having no unarranged overdrafts.

Other Debt – To get a mortgage as a First Home Buyer, you will need to ensure that you have repaid any short-term debt such as personal loans, car loans, credit card debts, hire purchase etc. Also avoid “buy now pay later” schemes as lenders don’t like these.

Unsure? or Confused?  No problem – just contact Trish for a no-obligation chat to talk through your options and how we can work together to get you “mortgage ready” feel free to reach out at 027 436 8367 or click here.

Remember my service is FREE!

 

 

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FIRST HOME BUYER – Tips for the purchase of your first home

Buying a first house necessitates careful preparation and, most importantly serious budgeting! These first home buyer tips can assist you in budgeting for the total cost of purchasing a home, which includes the building report, valuation, legal bills, and other expenses. If you have KiwiSaver you may be eligible for assistance for your first home via the First Home Scheme run via Kainga Ora on behalf of the Government.

Putting money aside for your deposit on your first home

Setting a savings target is the first phase toward saving for a house deposit.

With recent increases in house prices across New Zealand, there could be opportunities to borrow with as little as a 10% or even 5% deposit. So, if you’re purchasing a $600,000 home, you’ll need to save $60,000 for a 10% deposit or maybe $30,000 for a 5% deposit.

However, the smaller the deposit, the higher the risk for the lenders. Loans that are for more than 80% of a property’s valuation usually have higher fees and interest rate to reflect the higher risk These fees may differ greatly. Some banks levy a fee for mortgage repayment insurance, while others raise interest rates to compensate for the risk, some do a combination of both!

Lenders have traditionally required a minimum deposit of at least 20% of the house price for a home loan. As a result, a deposit of at least $120,000 will be needed for that $600,000 home., however, keep reading as there may be some further options you can consider.

Tools to save your down-payment for your first-home

When you’ve determined how much you need to save for a home, create a budget using a budget planner. It can mean sacrificing non-essentials for a while, but the joy of owning your first home will be well worth it!

If there’s a gap between what you’d spend in interest payments versus what you’re now spending in rent, it’s a smart idea to start setting the money aside on a regular basis. It can provide you (and your lender) an indication of how well the household expenditure will handle the situation. Use this sorted.org.nz  FREE savings tracker to see how much money you will save in a short period of time.

Kāinga Ora: Government assistance for your first home deposit

Under the government’s First Home Loan Scheme, you may be able to purchase a first home with as little as 5% deposit. However, you will need to have NO other debt and your account conduct with the bank and your credit record has to be excellent with no unpaid accounts or late payment charges.

You may be considered for a First Home Grant if you’ve been contributing to a KiwiSaver scheme for at least three years. You can get $1,000 per year for each year you have been contributing up to a maximum of $5,000 for an existing home or $10,000 for a new home.

If you have a partner or a friend or family member who wishes to purchase the home with you this can mean that you can both get the grants and you will have up to $10,000 for an existing home or $20,000 for a new home. Each region in New Zealand has maximum buying limits which are set by the Government.   Other residency requirements must be met, as well as area house price limits.

After three years in KiwiSaver, you may be able to take all, apart from $1,000 of the funds in your KiwiSaver account to support the purchase of your first house. This is referred to as a KiwiSaver withdrawal. Learn more about the KiwiSaver withdrawal scheme on their official page 

Deciding when to buy your first home

It’s likely that your first house would not be your perfect home because it’s your first home, not your last home. It’s pointless to buy a house if you can’t afford to make your mortgage payments. So the key here is to – “Buy a home you can afford and make it into a home you love!”.

If you want to purchase an apartment or a townhouse? Check with your mortgage adviser to see how much money you may be able to borrow against an apartment.  There is usually some minimum square footage rules that apply and it’s important that you understand what this will mean for you.  Apartment living is becoming an increasingly good option for first home buyers and I think this trend will continue in order to help address the housing supply issues currently in New Zealand.

Securing your financial future

If you are thinking beyond your first home purchase and are looking to secure your financial future as soon as possible. It may be relevant to consider what opportunities exist for you to live in your first home for a few years, pay down the mortgage and then use the equity you have built up to purchase a new home for yourselves. You could then rent out your existing home and use the income from the rent to cover the mortgage cost.

Think about stuff like:

  • Is the house near public transportation?
  • Is it possible to cycle to stores and schools?
  • Is the rental demand in the neighbourhood robust?

Obtaining a first-time home mortgage

Your first mortgage is likely to be the most significant financial investment you’ll ever make.

Before purchasing a house, most of us look at many options. It’s a smart idea to exercise the same caution when selecting a mortgage. It’s important to understand how being smart with your repayments could potentially save you tens of thousands of dollars over the life of the mortgage.

There are many options and it’s important you understand how to structure your loan so that it works for you and is fit for purpose. There are several different kinds of mortgages, each with its own interest rate, costs, and affordability. These factors will all have an effect on how quickly you repay your mortgage and how much interest you pay over the term of the loan.

Taking to a good mortgage adviser (broker) will assist you to achieve a great result.  It is part of my role as a Mortgage Adviser to  keep abreast of all lenders policies and what they offer so that when I assess the information for a mortgage application.

I know who will be the best lender to submit to loan application to in order to get it approved quickly and then I negotiate on your behalf to get a good package for you.

One important point to note is if you are applying to each lender yourself a credit enquiry is made on you. This includes the type of credit applied for, the amount of credit and the number of credit enquiries over a period of time can all have an impact on your credit score.

One of the biggest impacts of credit enquiries that often catches people unaware is “shopping around for credit”.

If you make a number of credit applications in a short space of time, it can result in a number of credit enquiries being listed on your credit report. This can have a negative impact on your score and the way lenders see you.  As a result of a credit check, your application for the mortgage will be recorded on your credit report. This is regardless of whether the lender accepts your application, or you decide to proceed with the loan.

The credit enquiry will stay on your credit report for five years from that date. Consequently, is not appropriate or in your best interest to submit an application to all lenders. Mortgage Advisers know this and they will be well aware of which lender is best for your personal situation.  So, keep this in mind.

Fees charged by lawyers

If you want to get a mortgage, you need to have a lawyer as lenders will only use lawyers to register a mortgage and sign the loan documentation.  Look for a good property lawyer, shop around for fee comparisons, but remember – you pay for what you get!

LIMs and builder’s reports

A builder’s report may reveal some potential issues with the home you’re considering purchasing. A qualified building inspector will notice details that the untrained eye will overlook, potentially saving you thousands of dollars. Your mortgage adviser will let you know if the lender requires a building report.  However, if you are buying an existing home it is always wise to get one done.

A Land Information Memorandum (LIM) recognizes any problems with the land on which the house is constructed, such as drainage and the possibility of landslips. Your lawyer will arrange to get this for you as it needs to be done just before settlement to ensure there are no potential issues.

Costs in relocating

When you purchase your first house, the mortgage is only one of the expenses you’ll have to deal with. You’ll need to budget for expenses such as:

  • Truck rental for moving
  • Fees for cellular, power, and Internet connections
  • Repairs or decorating
  • Advertisements for roommates or tenants?

Other expenses

In your new life as a homeowner, you’ll need to account for more than just mortgage payments. So be sure to factor in home insurance, rates and other reoccurring expenses.

Insurance for your home, its contents, and your mortgage

When you have a mortgage, the lender will want you to have it properly insured as they have their interest noted on the insurance policy.

You will need to consider life and mortgage repayment insurance in addition to the home and belongings insurance. Keep in mind that Lenders Mortgage Insurance protects the bank, not you if you default on your loan.

Local Council Rates

When you become a first home buyer, you automatically become a ratepayer too so you will need to include these in your budget.  A good mortgage adviser will have included this in your budget so you should not get any surprises!

City Councils levy rates to offset the costs of services like bridges, electricity, sewerage, and parks.  You can look up a property’s rates on the website of the local government.  Your mortgage adviser will be happy to provide you with this information.

Fees charged by the body corporate

If you purchase an apartment or townhouse it may have a ‘unit title’. There may be further fees called ‘body corporate’ fees. This will cover things like maintenance and common room cleaning.  Your lawyer will ensure you are fully aware of any costs and obligations with regard to these fees and your mortgage adviser will have discussed this with you as your lender needs to know about any ongoing fees being charged.

Where to go for help

If you would like a “no obligation” discussion around your options for buying a first home, or just need someone to run your budget by, feel free to reach out at 027 436 8367 or click here 

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Using a mortgage Calculator

mortgage-calculator

One of the key pieces of information to get your head around is how much your mortgage is going to impact on your finances and budget. For first home buyers, this can be a daunting experience as it is the first time that they are likely to have been looking at these sorts of numbers. Do not be discouraged, remember that the mortgage pathway to home ownership is a well-trodden one and both your mortgage adviser at Trish Greenwood Mortgage Adviser and the lender you end up going with are committed to ensuring that the package is manageable within the financial envelope that you have. Indeed, there is a margin of safety built into the process by banking regulations and practice in the New Zealand market.

The advantages of owning your own home are enormous in terms of security and long-term financial independence but like most things in life that are worth working for there is a cost side to the equation. The personal freedoms that come from owning your own home cannot be overstated.

To get a picture of what the regular payments are likely to be you need a mortgage calculator, there are lots of calculators available online. At Trish Greenwood – Mortgage Adviser we have a simple and easy to use example on our website which may help you Mortgage Calculator. From there it is easy to fill in the amount you wish to borrow, current interest rate and term of the loan. The monthly payment figure will be calculated for you.  If you want to know the weekly payment, multiply the monthly payment by 12 and divide by 52.  If you want to know the fortnightly payments, multiply the monthly payment by 12 and divide by 26.

There is an option to have a pdf report emailed to you also.

So, let’s have a look at an example – say you are looking at properties with a target price of $600,000 and you are able to offer a deposit of $120,000. This means you need to borrow $480,000 to make this deal work. Enter $480,000 into the ‘mortgage amount’, select an interest rate (likely to be around 2.29% in the current market), and the term (time duration) of the loan. 30 years is a common term at present and a good option to select for many people. If your circumstances change then the term can be revisited as you go along. Go ‘calculate’ and bingo, you have your monthly payments. In this scenario, we are looking at a monthly payment of $1844.59.

Depending on your circumstances it may well be advantageous for you to choose another payment frequency, but this can easily be arranged when setting up your mortgage. This is something that Trish will discuss with you, so you end up with a package that works for you, not the bank.

Another good mortgage calculator option is Sorted.Org. This is a government supported website that has a range of impartial information relating to personal finances and budgeting. Well, worth having a look around and their mortgage calculator is very user friendly. Plus, there is a range of other informative and credible information on personal finances, both how to manage debt and investment for your benefit and long-term advantage. Sorted also has a great money personality quiz which you can take to help you understand your financial strengths and possible blind spots.  It’s meant to be light hearted and a big of fun but for many, it has proved to be quite accurate.  See how you go!

Another good Sorted tool is their budget planner.  Many of my clients have found it really helpful to use this to keep track of their budget and help them with their savings plan.  Because it’s online, it easy to log in and share the information with a partner or other family members.

Sorted is a free service powered by the CFFC (Commission for Financial Capability), the government funded, independent agency dedicated to helping New Zealanders get ahead financially.

Obviously, there are many scenarios available in regards to the term of the loan and repayment frequency. In simple terms the more often you make payments the quicker your loan reduces and the interest payments over the term of the loan can be significantly less. Paying less interest is always an attractive option!

To work out what may work best for you it is always good to get some expert input. Trish can look at your situation in terms of income, family, matching income to expenditure, factoring in other outgoings and budgeting so that you can maximise your repayment situation. This is one of the advantages of using an experienced mortgage adviser who can take a holistic view of your individual circumstances and give real advice for real life of what can work for you. A mortgage is a long-term commitment and requires planning to make it work well for you.

Remember that any mortgage calculator will only give you a snapshot view “on the day”, but it’s and ideal place to start when you are looking at big picture affordability and to gauge realistically the viability of your proposal. But as always, the devil is in the detail and that is where Trish Greenwood Mortgage Adviser can add real value and give you peace of mind at no cost to you!

Remember that in life there is no such thing as a ‘free lunch’. Mortgage advisers are remunerated by a commission payment from the loan provider, and this is standard across the industry. The value that you get out of the transaction is up to you and your choice –  you don’t pay a fee but the level of service you experience can vary. Choose a mortgage adviser that will go into bat for you, assess your situation accurately and tell you straight up what the deal is. The property market has a range of professional providers that all have responsibilities to their clients. Your Mortgage adviser is someone who is on your side, not the vendors. At Trish Greenwood Mortgages, we represent your best interests as our client and help you navigate the complex world of the property market so that you can feel confident in making your decisions.

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