Here are some answers to common questions you may have:
When purchasing an owner-occupied property you can generally borrow around five times your gross annual income. Lenders will require evidence that you're in a position to service the mortgage based on paying it off over 30 years, and at a mortgage rate of around 7.50%, which is higher than actual rates. If you have a rental property, 75% of the rental income can be included for testing your ability to afford the loan.
Banks offer better mortgage rates (and cash backs) to customers that have at least a 20% deposit. You must have at least a 10% deposit to access your KiwiSaver, so this is where most lenders draw the line. Banks are permitted to have 15% of their owner-occupied borrowers with less than 20% deposit. The cut-off for rental properties is a 30% deposit.
New properties are exempt from Reserve Bank restrictions, making it possible to buy a new property with as little as a 5% deposit, but the issue with KiwiSaver still applies.
Banks can offer a wide range of their own mortgage products and are usually negotiable, sometimes waiving fees or discounts on day-to-day banking costs if you take out a mortgage with them. However, a personal banker only works for one bank and is limited in how much advice they can give.
A mortgage broker can arrange and negotiate mortgages between the borrower and the lender, and because they deal with multiple banks they can offer more options. They can also use their buying power to get a better deal for the borrower. The key thing is choosing a broker who is unbiased, and has access to all (or most) of the banks to ensure the best possible deal. Read 50 reasons to use a Mortgage Broker.
90% of the market is on fixed mortgage rates because they are lower than floating rates. The most popular fixed rate term is the 2-year term as it tends to be the term that banks compete the most aggressively on. Longer term fixed rates provide more certainty. When mortgage rates are low it can be a good time to consider fixing into a longer term fixed rate. It's important to note that if you repay a fixed rate mortgage early you might have to pay a cost.
For more in-depth advice, here are three things to consider when choosing your mortgage rate.
Splitting your home loan across multiple fixed rate terms means your entire loan won't mature at once. It allows you to always have part of your loan maturing that you can make lump sum payments into as well as the certainty of having part of your loan still fixed. If mortgage rates are going up, splitting your loans will smooth out the impact and make it easier to adjust to higher rates.
When you repay a fixed rate loan early, the lender also needs to break its fixed rate funding. This is a real cost to the lender, which the lender passes on to you as a fee. These costs only typically occur if mortgage rates drop between when you fix and when you repay. Roughly it’s the rate difference applied to the loan balance over what would have been its remaining fixed rate term.
Having debts will mean a portion of your income is already tied up in existing debt servicing, so it will reduce your lending capacity with the bank. This doesn’t mean you can’t get a mortgage, but the less debt you have, the higher the potential lending value.
In simplicity, the answer is no. However, if your available deposit is higher than 20% or even 10%, you could look at only using a 20% or 10% deposit and retaining the difference to repay some or all of the existing debt.
There are a few ways to potentially use a parents’ property/equity to help you purchase your own home. The most important thing to find out first is whether or not your parents have equity available in their home and if they're still earning an income.
Because of the Responsible Lending Act, banks do require parents to meet servicing standards and depending on the level of their income, this will determine which options may be available for them to access and allow you to use their equity.
In addition to being able to withdraw from your KiwiSaver, there is also a HomeStart Grant which you can apply for. To be eligible for this you must:
- have contributed at least 3% of your income to a KiwiSaver scheme for at least three years
- be planning to live in the house for at least six months
- have a single income under $85,000 or a combined yearly income of $130,000 or less (before tax) between two buyers
- be buying a house under $600,000 (or building new for under $650,000) in Auckland, $500,000 in other major metropolitan areas, and $400,000 across the rest of New Zealand
Unfortunately KiwiSaver is only approved for purchases of a home that you'll be living in yourself.
There is an allowance for a second chance withdrawal. If you don't currently own a property and you don't have funds which contribute to at least a 20% deposit, then there is a possibility that you can access your KiwiSaver again for another home purchase. Approval will sit with your KiwiSaver provider.
Rate of the day is what we consider the best value mortgage rate for a loan with a loan-to-value ratio below 80%, that is available to new and existing borrowers, and is not limited by the size of the loan.