As opposed to that, mortgage rates that loosely follow the headline rate, have been very attractive. You can now lock in your home loan repayment for the next one year at just 3.79%. If you wish you can even lock in your repayments over the next 5 years at just 4.39% per annum.  

So, should you be fixing these rates considering they are so low, or should you not? The case for not locking in now is that the headline rates may go down even further. On the back of that, it’s possible mortgage rates could fall further. But is that certain?

There are a number of factors you should consider before you make a decision to fix, or otherwise.

Managing cashflows

Perhaps first and foremost relates to how much certainty you wish to have in terms of your cashflow to meet your regular loan repayment obligations. For some, being able to lock in a rate now means that there is certainty of cash outflow into the future.

The benefit is that it helps you better budget your income and expenditure around that amount. Depending on how much you value ‘certainty’ you can choose a timeframe that your are comfortable with. This could be over 6 months, 1 year, 2 years etc.

Instead, if the certainty of cash outflow is not of great concern to you, it is better to make a considered choice between fixing your mortgage rates versus otherwise.

Given floating mortgage rates offered by most banks are over 5.5%, there is still a sizeable margin over any of the fixed mortgage rate terms. For instance, on a loan amount of $500,000 someone on a floating rate of 5.65% would pay $28,250 in interest in the next one year. On the other hand, someone else on a fixed rate over the same time would be paying about $19,250 – a substantial difference of $9,000 in just a year. 

On the above basis, if you do decide to go for a fixed rate option, the next question is pretty obvious. How long should you fix it for? 

Spreading the bet

Recent indications, and the market commentary, indicates an emerging slowdown in the economy. Should that happen there is a potential that banks would follow suit in reducing mortgage rates. (There is always a ‘should’ with these types of forecasts).

On the other hand, proposed rule changes for banks may mean that they face higher costs for running their business. Should that get passed on to consumers that could mean that mortgage interest rates could rise. Under such heightened levels of uncertainty one option to consider is staggering the fixed rate periods.

Practically, this would mean that you split the loan outstanding into smaller portions. Then, fix each portion over different timeframes. For instance, you could lock in the 1, 2, 3 and 4 year loan rates by putting a $125,000 into each of the fixed terms. You still run the risk that in two years time the rates move lower. But, by then you would have at least some of your outstanding loan ready to be rolled over. At which stage you can benefit from the lower rates then.

You can apply this thinking in any number of ways. It is not necessary to have equal amounts in each timeframe. You could front load a majority of the loan amount to the short term. Or you could have only a smaller amount locked into a near term rate with the bulk of it locked in over a longer term.

Shop around for the best home loan mortgage rates here.

The post To fix your mortgage rate, or not, that’s the question appeared first on PocketWise.

You want to buy a house. The asking price is $500,000, but you and your partner have only saved $100,000. You need a handy, dandy mortgage. A mortgage is essentially a loan from the bank for you to purchase real estate. And like any other loan, you will need to pay it back.

Principal

For the $500,000 house, you already have $100,000, hence you only need to borrow $400,000. This is the principal – the original amount you borrow for your mortgage.

Deposit

Nowadays, due to restrictions introduced by the Reserve Bank, banks in New Zealand generally require a 20% deposit; so if you want to buy a house for $500,000, the bank will (generally) expect you to have $100,000 (20%) as a deposit.

TIP! If you don’t have a 20% deposit, submit a loan request and one of our partner brokers will discuss your options with you.

Interest

Interest is the cost of borrowing money. When you take out a mortgage, you agree to an interest rate with the bank, which determines how much you will pay the bank to continue lending. Interest rates in New Zealand now range from 4% to 5%, but can vary based on the bank, type of mortgage, your credit rating, and your personal situation.

TIP! Have a look at our mortgage comparisons to see how your repayments might differ for the different interest rates.

But as they say, there’s no such thing as a free lunch. When you take out a mortgage, you don’t really own the house in full, until you repay your loan and all interest payments. If you fail to make your repayments, the bank can sell your house to claim back whatever you owe them.

“Sounds good and scary at the same time!”

Most people don’t have the money to purchase a property outright. As of the week ending 27th May 2016, there were around 7,000 mortgage approvals in New Zealand. Mortgages are debt, so you mustn’t take it lightly. But at the same time, mortgages give you the ability to purchase a home of your own.

If you want to calculate how much your repayments will be, use our repayment calculator. Not sure how much you can afford? Use our affordability calculator to figure out how much you can borrow.

The post Mortgages 101 appeared first on PocketWise.

Even though this move might not please many Aucklanders, it is what is needed to ease the urban sprawl and deal with the increasing population in New Zealand’s biggest city.

So, is this the right time to look into buying apartments? And how does one go about buying one? Well, we’ve done the hard work to find out how to go about buying an apartment and what kind of gotchas you need to be aware of.

Here is a list of Do’s and Don’ts of buying an apartment that you should keep in mind while you’re out hunting for your next home.

Do’s

• Get assistance from your mortgage broker or banker on the lending criteria for apartments . Most banks have stringent criteria for giving out money to buy apartments, so make sure you find out how this works and work closely with a banker or a broker during the buying process.
• Be clear on what kind of additional expenses you will have on top of your mortgage repayments . Most apartments have a body corporate fee to cover the maintenance costs of shared areas in the apartment. On average, this is about $5,000 a year, but this can vary depending on the location and size of your apartment. Make sure you understand what the body corporate levy includes and take this into account when you’re doing you’re budgeting.
• Read the body corporate minutes . This provides insight into how the building is managed and if/when any potential upgrades to the building will take place. If the document is too long or you don’t understand something, it is worth getting a lawyer to check it.
• Be clear on whether you need car parking, and if so, how many spots ? Car parking is almost always not included with an apartment. This is usually an additional expenditure that many people forget about and it will almost certainly come and bite you in the rear end if you don’t plan well. Buy the number of spots you will need now and in the near future. If you need extra spots in the future, you can buy one at that stage but you might have to pay more.
• Do your research into the plans and builders if you’re buying off the plans . Buying off the plans is great, you get a brand new apartment and a chance to customise it. However, we’ve all heard of building nightmares where the builder walks off the job for some reason. Make sure the builder you’re trusting has a good reputation.

Don’ts

• Don’t buy a leasehold unless you know what you’re getting into . Put simply, a freehold apartment means you own the apartment and a share of the land that it is on. Leasehold means you own the apartment but are leasing a share of the land from the owner. This make leasehold properties much cheaper but you are also missing out on appreciating land values.
• Don’t neglect legal due diligence. Buying an apartment involves more legal contracts than a normal house, more so for leasehold apartments. Without proper due diligence of the contracts you are signing, you may get yourself into a bit of a pickle. If you are not good with paperwork get someone to help you out, you will not regret it.

Now that you know how to buy an apartment, calculate how much the repayments for your dream apartment will be and compare interest rates from New Zealand’s leading banks.

The post Apartment Buying Do’s and Don’ts appeared first on PocketWise.

If you want to calculate how much your repayments will be, use our repayment calculator. Not sure how much you can afford? Use our affordability calculator to figure out how much you can borrow.

The post Buying vs. Renting appeared first on PocketWise.