A Practical Guide to Borrowing
When it comes to buying property, money is the number one thing on most people’s minds! And understandably so, as it’s likely the biggest purchase you’ll ever make. While a lot of the information you can find online is about preparing a mortgage application, it’s just as important you feel confident about what you’re signing up for once your mortgage is approved. Here are some of the practical things to think about.
What is the total cost?
Along with your mortgage, you need to be clear on the interest rate you’ll be charged and any additional fees you’ll need to cover. Your mortgage adviser will be able to explain the various financial options available to you including the pros and cons of loan structures and how they’ll affect your payments.
Questions to think about include:
• What will you have to pay in total for taking out this mortgage?
• What are the penalties for early settlement?
• What is the best way to structure your loan to fit your requirements?
• Will you still be able to afford your mortgage repayments if interest rates rise?
• How much will insurance cost?
Who is the borrower?
Buying a home with a Family Trust has a number of significant benefits – it lets you protect your assets from creditors and prevents claims against your estate. However, having a trust means you lose ownership of the asset and it can prove tricky when it comes to the banking part of your mortgage transaction. It’s best to seek legal advice before going down this route.
Likewise when buying a property with a guarantor – with so many Kiwis accessing the Bank of Mum and Dad, these types of arrangements are more and more common. If you are buying a property with a guarantor, it’s vital you’re clear on your obligations and that your mortgage contract is set up in such a way that protects the guarantor from any defaults on your part.
What’s my deposit?
Saving a deposit is usually the hardest part of buying a home as the size of your deposit makes a big difference to the interest rate and other costs you could potentially be charged by your lender.
It’s standard practice in New Zealand that when you buy a property, your deposit – usually 10% unless an amount is specified in the contract – is paid to the seller when you exchange the signed sale contract after your offer has been accepted. If you buy at auction, you will sign the contract and pay the deposit – again, usually 10% – on the spot.
This amount may be different to what your lender requires you to have in the bank for use as your deposit in securing your mortgage. Saving a 20% deposit means you have more leverage to negotiate a better interest rate and you avoid paying Lender’s Mortgage Insurance (LMI) because your loan to value ratio is 80%.
On the other hand, waiting until you’ve saved enough means you could miss out on buying a property at an opportune time – when the market is in your favour. Talk to your Duane about your options for a low deposit home loan. I have had success with securing loans for borrowers who meet the criteria with just a 10% deposit.
Who to talk to?
When it comes to securing a mortgage, getting the right advice is critical. That’s why it pays to work with a professional mortgage adviser. Get in touch with Duane Aarts from Mortgage Express to talk about your options when it comes to financing a first home or refinancing an existing home. I can walk you through the money-side of your mortgage so you’re absolutely clear on what you’re signing up for.
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While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.
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