clearpathadvisory-co-nz

Mortgage Broker or a Bank?

Sun, 27 Oct 2024 11:46:04 GMT

Mortgage Broker Versus Salesperson at a Bank

There's a big difference in the way the two operate, what they can offer you and how they are paid. You should know the differences in their services when you are getting or renewing your mortgage.

What does a Mortgage Broker Do?

A mortgage broker acts as an intermediary between the borrower and the bank or lender offering funds. A mortgage advisers job is to do the following.

Understand your financial position and your goals for the future.
Hunt the market for the best mortgage option for you.
Provide expertise to clients during the home purchase.
Offer advice on mortgage products and how they fit your circumstances i.e. whether to fix or float or use a combination.
Tell you what information you need to supply and submit the mortgage application for you.

Brokers in New Zealand must be licensed and registered with the Financial Markets Authority (FMA). They must also complete educational requirements to ensure the have the required product knowledge to advise members of the public.

How are mortgage brokers paid?

Advisers are usually paid a percentage commission based on the amount of the home loan. This payment does not effect the interest rate you are charged.

What does a Bank Salesperson Do?

A sales person at a bank has the same role as a broker with one exception. They do not "Hunt the market for the best mortgage option for you". A bank sales person can only offer the products available at their own bank. They seek value for you by knowing you personally and offering the suite of products available from their institution. For example, you may have your mortgage, a savings account, a credit card and even KiwiSaver all with the one bank.

How Do I Pick Which One to Use?

The key here is to first understand that if you are borrowing for buy a home, you are the customer and you have bargaining power. There are often cash incentives for going with different banks and it's worth shopping around to see who has the best offer. There's no harm done in trying both. Any financial adviser should advise you up front how they earn their fees, if they don't, ask them at the beginning. Here's some key tips to help make a decision.

Regardless of Bank or Broker - having a good relationship with your financial adviser is really important. If you're not comfortable with an adviser, try someone else.
They should understand your financial position and want to help grow your wealth.
It's their job to work through the pros and cons with you and explain why a product is or isn't a match to your goals.
If someone has arranged a mortgage for you in the past and you are coming up for a fixed rate renewal, they should be in contact with you asking if you want any help ... if they haven't contacted you then it's time to look around.
It does no harm to try different options and see which one fits you best.

Question: have you ever

heard from the person who arranged your mortgage again?

Mortgage Broker Versus Bank Checklist

Shop around and find a good personal fit.
Don't be afraid to ask questions, it's their job to help you.
You should receive personal, tailored, professional service that helps you get into a home or an investment.

Your Mortgage Checklist

Sun, 27 Oct 2024 11:46:04 GMT

Mortgage Checklist

It's stressful buying a home, whether it's your first time or last. Here's a list of things you can work through to make sure you're prepared. Remember a financial adviser can help you work through and submit the application for you.

What's your home loan budget?

We have an article here that covers tips and information on getting a deposit. We suggest savings tips and also outline help you can get via KiwiSaver and the First Home Loan scheme available from some banks. We also have links to budget apps that will keep you honest when assessing how much you can afford.

Find your home

Are you going to build or buy an existing house. You'll need to weigh up the time versus getting exactly what you want. The best way is to start looking and you don't have to leave the house. Here's a few online resources to use.

homes.co.nz - search by map interface

trademe.co.nz - not just your second hand good, they also have a property section

realestate.co.nz - official website of the Real Estate Institute of NZ

oneroof.co.nz - website version of the print version in the NZ Herald

Decide on a bank or broker

We address this decision in this article , the key thing is that you find the right person for you. This decision is supposed to make things easier because you've found someone you can trust who will help by doing a lot of the work for you. Regardless of who you choose you will need to know the following to kick off the process.

What deposit I have and where it is i.e. KiwiSaver, savings account, gift from parents etc.
What is my income and how long have I been employed there.
What are my debts.

What kind of mortgage is right for you?

Do you want to split your mortgage into part fixed, part floating. There's reasons to do that based on your expected future income. It may also be that you are suited to an Offset Mortgage or a Revolving Credit Mortgage. The links take you to our articles which explain the ins and outs but that's also part of your financial advisers job - to advise you on the best structure for your mortgage.

Mortgage pre-approval

If you know your budget and want to get organised, contacting a financial adviser and getting pre-approved for a specific loan amount means you can move quickly when you find the right property. You don't have to do this but it can speed things up once you've selected a property.

The paperwork

Here's some things you'll need to work through.

Building inspection and valuation

You can read up on this government website concerning advice about buying a house. But the bottom line is "A pre-purchase building inspection is advisable for all properties, but essential for homes that may be at risk of leaking or have been damaged by a natural disaster."

Land Information Memorandum (LIM)

This is a report that contains the summary of information about a property from council records. It's essential to get an up to date LIM report, it shows things like zoning, rates owing, land features etc. Here's a link to the Auckland Council's website explaining what's in a LIM.

Getting a lawyer to complete the ownership transfer

You will need a lawyer or conveyancer to complete property transaction. Having a lawyer will ensure you cover any extra issues that may occur.

Good things to know

Good bank account conduct

Good bank account conduct for the previous 3 months is needed to get a loan. Make sure you have no dishonours, this is simply showing the bank you can manage your expenses.

Pay off Debts

Banks will consider all debt like buy now pay later, credit cards and personal loans. If you can pay these off, this can improve your affordability calculations.

What is a Revolving Credit Mortgage

Sat, 26 Oct 2024 07:31:43 GMT

Understanding Revolving Credit Mortgages

A revolving credit mortgage is one big account that all transactions pass through i.e. your income, savings, expense payments and mortgage payments are all handled from one account. Think of one big overdraft account for everything to go into. You only pay interest on the balance of the account each day when interest is calculated. The idea being that the positive balances in the account reduce the amount of principal you pay interest on.

How does a revolving credit mortgage work?

Generally a revolving credit mortgage is based on a floating interest rate and does not have a fixed term. In this case the credit is revolving as you can borrow and repay the funds over and over. The account offers a lot of flexibility as you can make lump sum payments i.e. if you got a bonus you may choose to put that whole sum into your revolving credit account and hence immediately pay that amount off your mortgage, with no penalty for making an extra payment. Conversely, if you wanted to withdraw a $4,000 to buy a cheap car you have immediate access to those funds up to your credit limit.

Note: A revolving credit mortgage does not have set repayment amounts on a set date. You can make payments at any time for as much as you like, conversely you can withdraw funds up to your limit whenever you like. You pay interest on your outstanding balance, which is calculated daily. Interest is deducted usually fortnightly or monthly from your revolving credit account, meaning you must have sufficient credit available in your account so you don't exceed your limit.

Tip: Using your credit card for all expenses and paying it off in full each month is a great way to keep your revolving credit account balance down minimise your interest payments.

What are the Pros and Cons?

Pros

Ability to reduce your mortgage expense by lowering your principal.
Ability to redraw credit multiple times.
Not charged for extra repayments
May suit irregular income earners

Cons

With funds easily available you may be tempted to draw down when you can't afford it
The savings accounts money you put into the revolving credit account are not earning interest.
You cannot lock in a fixed rate as revolving credit accounts are usually based on floating rates.
It can be difficult to track where you are at i.e. there is not a separate savings account that you can watch grow, everything is all together in one big account.

Who should use a revolving credit mortgage?

This type of account is best suited to people who have good discipline with their money management. Funds are easily available for purchases up to your credit limit, so you'd need to be careful opting for this account if money tends to burn a whole in your pocket. It can be confusing trying to understand where you mortgage is at i.e. how much progress you've made paying it off. Funds come in and out constantly which makes benchmarking difficult.

A similar product to a revolving credit account is an offset mortgage, it offers similar advantages but with less financial management required. You can read about offset mortgages here .

How To Save a Mortgage Deposit

Fri, 25 Oct 2024 03:28:21 GMT

In New Zealand you generally need a 20% deposit when buying a home, although banks do lend in some circumstances to those with less than that amount. With the year by year increase in property values 20% can seem a little out of reach. Read on as there are lots of things you can do, in this article we cover the following topics.

Tips for Saving your deposit
Using KiwiSaver for your deposit
First Home Loan - 5% deposit

How Do I Save Up For a Mortgage Deposit

Of course you need to be disciplined and keep putting funds aside until you reach your deposit amount goal, we want to help get you there. There are plenty of tips and tools that can make that journey easier and hopefully faster.

Set yourself a savings goal

You need to work out what's possible so you can set yourself a realistic target and timeline to achieve it. The sorted website has some excellent budgeting tools, particularly this Budget Planner where you can enter everything in and save under your profile if you choose.

Look at your income

Can you do something short to medium term to increase your income?

Do you have a spare room to take a boarder?
Can you take on extra work to get over the line?
Have a think about your skills, could you provide tutoring on a topic?
Would you consider being an Uber driver?
If you have a part of a deposit, make sure you're earning the best interest rate .

Be strict with your expenses

It's surprising when you do a review of your expenses how much you can lower your outgoing costs, for example.

Shop at Pak'nSave instead of New World and start bulk buying.
For regular expenses like petrol make sure you're on reward programs.
Tell the kids to cut down shower times.
Review your utility bills and switch if a company is offering you a saving.
There's plenty of competition now in the mobile phone market , make certain you have the cheapest plan for your use.
Plant your own vegetables - healthy and cheap!

Can I Use My KiwiSaver When I Buy a Home?

Sure can, if it's for your first home! This government website explains all the details, a summary below.

Eligibility to use KiwiSaver for your first home

Must have been a member of KiwiSaver for at least 3 years.
You intend to live in the property, KiwiSaver funds cannot be used for an investment property.
Must not have owned a home or land before (there is a second chance opportunity for those in the same position as first home buyers, check with Kainga Ora - Homes and Communities).
The home or land must be in New Zealand.

You can withdraw

Your contributions
Your employer's contributions
The government contribution
Interest you have earned
Fee subsidies (if you got these).

Note: you must leave $1,000 in your account and cannot withdraw funds transferred from Australian Superannuation Schemes.

What is a First Home Loan?

Some banks and other lenders have joined a scheme where they will issue a loan to borrowers with only 5% deposit. These loans are underwritten by the government via Kainga Ora - Homes and Communities . The end result - it's easier to get into your first home.

To be Eligible for a First Home Loan, you must.

Have the 5% deposit and be purchasing a home as your primary place of residence.
Be a New Zealand citizen or permanent resident.
Be a first time buyer or be in a position of a first time buyer.
Have a before tax income from the last 12 months of
$95,000 or less for an individual buyer without dependants; or
$150,000 or less for an individual buyer with one or more dependants; or
$150,000 or less (combined) for two or more buyers, regardless of the number of dependants

You will still need to meet your banks lending criteria but the key is that you might be able to get into a home sooner than it takes to build up the full 20%.

What is an Offset Mortgage

Wed, 23 Oct 2024 22:44:52 GMT

How do Offset Mortgages Work?

An offset mortgage account allows you to select a number of accounts where you hold a positive balance to be offset against your mortgage balance. Offset mortgages have a floating or variable interest rate, which is usually higher than fixed interest rates. Typical accounts that you would use to offset your mortgage balance would be savings accounts or everyday accounts such as accounts where you move money to pay your bills with.

You only pay interest on the balance of your mortgage account minus the balance of your offset accounts. However you do not earn interest on the accounts where you have a positive balance and have designated to be offset accounts. You will have a minimum repayment amount which you'll pay on your payment date. Typically the banks providing this account will allow you to make extra payments on your mortgage without paying a penalty.

If you use an offset mortgage account properly it will decrease your interest paid over the life of your mortgage. The result being that you end up paying your mortgage off faster and pay back less interest over the course of your loan.

An Offset Mortgage Example

Referring to the image above, imagine you have positive balances across some accounts that totals $15,000. If you have an offset mortgage, when the bank calculates the interest you owe it will subtract $15,000 from the balance of your mortgage $250,000 so you end up being charged interest on $235,000 instead of $250,000.

How Much Does an Offset Mortgage Save Me?

Calculating potential savings is complex as it involves:

A day by day comparison of what you would pay under a fixed rate versus payments under floating rates applied against your mortgage balance offset by accounts whose balances vary day by day.

However that's exactly what your financial adviser is there to help you with. A good financial adviser should be able to work through this with you! Here's what you'll work through and understand to see if this type of account makes sense for you.

There is a trade off in that you are not earning interest on your savings but instead are reducing it on your mortgage payments.
The interest rates in New Zealand for floating rates are usually higher than fixed rates.
So you need to have enough positive balance to offset that higher interest you pay on a floating rate.

It's complex but we have tools to help analyse this type of decision to see if it's correct for you!

Offset Mortgage Pros and Cons

Talk to us to assess whether an offset account is right for you

Refix, Refinance or Restructure

Mon, 30 Sep 2024 22:44:53 GMT

Refix, Refinance or Restructure

These terms are all common place when your dealing with home finance. You should understand what each one is when it comes to making decisions about what is likely to be your biggest asset.

What is a Mortgage Refix

Refixing is when you lock in a new interest rate for a set period of time once your current fixed interest rate period has expired. An example is some who had agreed on a fixed rate for 2 years with their bank. After 2 years is up they decide to fix again for 2 more years at a new rate. That's a refix.

If you want to explore the effect a change in rates will have on what you pay each month, try different rates in our Calculators page.

What is a Mortgage Restructure?

A mortgage restructure is changing the way your mortgage is structured or in simpler language the way it works, there are many options than just just picking a fixed time period to pay off your loan and fixing a rate. An example is someone who is coming to the end of their fixed 2 year period commitment and wants to explore other ways to more effectively pay off their home loan. Some examples of what you might consider as options for a restructure.

Splitting your mortgage into a fixed and floating component

Why: You have surety concerning the fixed payments i.e. exactly how much you will pay over a set period of time. With the floating portion you have the flexibility to make lump sum payments without getting penalised. This gives you great flexibility if you happen to come into some money via a bonus or gift and want to reduce your mortgage duration.

Setting up an Offset Mortgage

Why: An offset mortgage allows you to designate a set number of accounts that hold a positive balance to be used to offset the amount of interest you pay on your mortgage. For example if you have a mortgage of $250,000 but you have $15,000 in the accounts you've designated as offset accounts you will only pay mortgage interest on $235,000 instead of $250,000. You can learn more about Offset Mortgages in our article here .

Setting up a Revolving Credit Mortgage

Why: A revolving credit mortgage is like a big overdraft account with all income and payments being managed from one account. It provides huge flexibility when managing your funds but also requires good discipline as you can redraw up to your limit. You really need to understand this product before committing to it, if you'd like to understand more about how they work you can read our article here .

What is a Mortgage Refinance?

A mortgage refinance is when you move your home loan from one bank to another i.e. you may feel you are not getting the service you require or another bank may have a mortgage product like an offset account that you want to setup. What actually happens in this instance is that you pay off your home loan in full and move to a new bank.

You should be aware that when you take out a home loan with a bank, you are their customer. Over the course of your 25 or 30 year term most people end up paying the value of what they borrowed twice i.e. if you take out a $250,000 mortgage, over 30 years you end up paying roughly $500,000. The point being, you are a really great customer and the bank should look after you. If they don't you should look around to assess options.

clearpathadvisory-co-nz

Mortgage Broker or a Bank?

Mortgage Broker Versus Salesperson at a Bank

What does a Mortgage Broker Do?

How are mortgage brokers paid?

What does a Bank Salesperson Do?

How Do I Pick Which One to Use?

Question: have you ever

heard from the person who arranged your mortgage again?

﻿ Mortgage Broker Versus Bank Checklist

Your Mortgage Checklist

Mortgage Checklist

What's your home loan budget?

Find your home

Decide on a bank or broker

What kind of mortgage is right for you?

Mortgage pre-approval

The paperwork

Building inspection and valuation

Land Information Memorandum (LIM)

Getting a lawyer to complete the ownership transfer

Good things to know

Good bank account conduct

Pay off Debts

What is a Revolving Credit Mortgage

Understanding Revolving Credit Mortgages

How does a revolving credit mortgage work?

What are the Pros and Cons?

Who should use a revolving credit mortgage?

How To Save a Mortgage Deposit

How Do I Save Up For a Mortgage Deposit

Set yourself a savings goal

Look at your income

Be strict with your expenses

Can I Use My KiwiSaver When I Buy a Home?

Eligibility to use KiwiSaver for your first home

You can withdraw

What is a First Home Loan?

To be Eligible for a First Home Loan, you must.

What is an Offset Mortgage

How do Offset Mortgages Work?

An Offset Mortgage Example

How Much Does an Offset Mortgage Save Me?

Offset Mortgage Pros and Cons

Refix, Refinance or Restructure

Refix, Refinance or Restructure

What is a Mortgage Refix

What is a Mortgage Restructure?

Splitting your mortgage into a fixed and floating component

Setting up an Offset Mortgage

Setting up a Revolving Credit Mortgage

What is a Mortgage Refinance?

Mortgage Broker Versus Bank Checklist