Home Loans Auckland
What you need to know about Home Loans in New Zealand
The dream scenario for most Kiwis when it comes to owning a home is a house sitting on its own quarter of an acre section. The past few years has seen this becoming an increasingly difficult challenge for anyone attempting to gain their first steps onto the property market. According to statistics released in 2015 the number of householders in New Zealand that owned their own property had dropped to 64.8%, this was the lowest figure recorded since 1951 when it was just 61.5%.
Auckland had one of the worst problems with an acute shortage of affordable housing for first time buyers looking to enter onto the housing market. This however leaves those owning property and wishing to sell in a position of whether to cash in or sit longer on their asset.
In the current climate of the property market it is more important than ever that you compare home loans. You should ensure that you get the best home loan with the best interest rate available that suits your needs. When you are buying property it is likely to be the biggest financial commitment you will ever make and so it needs lots of careful planning, it is important that you get it right, read on to discover how to get the best nz home loans in New Zealand.
What is a Home Loan?
A home loan or mostly referred to as a mortgage is a loan that has been advanced to you as security for a property that you are buying through the loan offered by a financial institution. A home loan will typically be set over a term of 25 or 30 years with regular repayments being made usually monthly but sometimes fortnightly. The loan is in fact secured against the property you are buying so if for whatever reason you fail to continue with the payments the lender can seize the property as a way of settling the debt. A home loan is the only realistic way most people in New Zealand can afford to pay for a house.
Types of Home Loans
There are several types of home loans available in New Zealand. Here are some of the most commonly used:
Fixed Rate Home Loan
This type of home loan simply means that rate of interest that you are paying is fixed for a set period of time usually this is anything from one through to five years. When the interest rate is low this is a good option. The biggest advantage to having a fixed rate loan is that it gives you a certain amount of control over your finances because the interest rate will not change if the lending rate set by the national bank should rise. The disadvantage is if the interest rate drops significantly you are left paying a higher amount. Another disadvantage of this type of loan is that they are very inflexible and should you wish to pay off your loan early you will have to pay a penalty clause for doing so.
Floating Rate Home Loan
Floating rate home loans are designed to adjust with the current lending rate and your interest rate could in theory be adjusted every month either up or down. They are flexible, as long as you meet the minimum monthly payment you can pay off as much as you like every month. There is also no penalty incurred should you pay off the loan early. The main disadvantage to this type of loan is if you are on a tight budget the monthly fluctuations in minimum payments may not be to your advantage.
Interest Only Home Loan
Interest only home loans are designed for short term loans where you only pay off the interest charged and not the principle amount borrowed. This type of loan is ideal for investors that buy a property claiming the interest as a tax deduction and sell the property on a short while later for a profit. They are not designed to be used by home buyers because the monthly repayments are lower. You may actually pay more in interest payments on this type of loan than on other types of loans. Generally interest only loans are used for a maximum period of 5 years, after this time it would revert to a traditional principal and interest type of loan.
Line of Credit Home Loan
A line of credit home loan is a loan borrowed against the equity in your existing home. It is not a loan set up to purchase property, merely set up using the available equity to borrow additional funds. It does give you the flexibility to access the loan at any time up to an agreed limit and you can pay money into the loan at any time.
Home Loan Interest Rates and Fees!
It is important to compare the rate of interest each bank or financial institution is offering you as this can make a big difference over the course of a 25 or 30 year loan.
There are some fees that you may find apply to your home loan, here are some of the most commonly used ones:
Account keeping fee
The account-keeping fee is a service charge by the lenders that is often paid monthly to cover the costs of administration during the loan period. On some accounts it might be called a service fee.
You may find some lenders charge you an annual fee in preference to a monthly account-keeping fee. Annual fees might also cover costs such as a ‘package loan’ where several deposit and credit accounts are packaged together with your home loan under one administration or administrative cost.
It you have a redraw facility added into your home loan where you are able to redraw some or even all of your payments to your home loan in advance you may find a fee associated with this feature.
Other fees may include a loan application fee, a valuation fee from the time of the purchase of the house, a late payment fee if you miss a repayment date or a discharge fee if your loan is paid early.
Before signing your home loan you should ask your lender to explain in detail all the fees that will apply to your home loan.
What is the cost of a NZ Home Loan?
More important than the interest rate, is the rate you pay it off.
This is why I wrote my Book “Is your money managing you?”. Even an extra $100 a month can make a massive difference.
It is almost impossible to answer the question about the cost of a NZ Home Loan accurately as it will depend on several factors such as the size of your loan, the term of that loan, the interest rate and the fees charged. Other variables to factor in could be if your make any other additional repayments or extend the period of your loan and fluctuations in the interest rate. To give you some idea of what it might cost over a 25 year period with an interest rate of 5.50% read the next paragraph.
If you borrowed $200,000 your monthly payment at 5.50% would be $1,228 and over 25 years at this rate the total of your payments would be $368,452. If you initially borrowed $600,000 at the same rate your monthly payment would be $3685 and the 25 year total would come to $1,105,357.
Other home loan features
There are several different features that you can have attached to your home loan. These features can include the following:
- An offset account
- A facility to redraw
- The choice to make extra repayments
- The choice to split the loan between variable and fixed rates
- The option to switch to a different type of loan
- The option to pre-pay interest charges
- Online payments
- Lending terms including the loan to value ratio allowable
- Guarantor security availability
It is always important to compare as many home loan options as you can, that way you can ensure you get the best deal available at that time. Take your time in deciding what may well be the best deal for you when taking out possibly the biggest financial transaction you are likely to encounter.
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