New Zealand Mortgages

HiFX do not offer financial and mortgage advice but we listen to client feedback and can suggest suitable companies.

How much can I borrow?

There are several factors that will determine the maximum amount you will be allowed to borrow, these include:

• the size of your deposit,
• your household income, and
• the type, condition and location of the property you wish to purchase

Deposit

Most lending institutions will lend up to a maximum of between 90% and 95% of the market value of a residential property and under certain circumstances it may even be possible to gain approval for 100% finance. Lenders are careful to limit their risk and generally where the deposit is less than 20%, the lender will charge a Low Equity Fee which allows them to insure against the increased risk involved. This insurance is taken out to protect the lender, not the borrower and can usually be added to your loan. Deposit requirements can differ between lending institutions and also across property types:

• houses
• sections
• apartments
• rental properties
• building a new home

Income

As a guide, most lending institutions would require that all financial commitments should not exceed one third (approximately) of your gross income. If you and your partner are buying the property together then the bank will take into account your combined incomes. Lenders will also take into account any other outstanding debt that you may have such as hire purchase agreements and credit cards. Any commitments you have may reduce the maximum amount that you can borrow. Each lender assesses an application in a different way and an independent mortgage broker can advise which bank will assess your income position most favorably.

Documentation required

In order to assess a loan application, lenders will require the following documentation:

• Proof of income - such as employment contract, recent wage slips, or letter from employer
• 3 months bank statements
• Proof of deposit
• 2 forms of photo identification
• Copy of Sale and Purchase agreement (if an offer has already been made).

Overseas Investors & Non-Residents

Most lending institutions will consider applications from overseas investors and non-residents but with some further restrictions. Maximum lending is generally limited to 80% of a property's value, and this may be lower for non-standard security types such as apartments. Lenders are required by law to identify the borrower in person in a New Zealand branch prior to final approval of the loan. They will also require a New Zealand representative, normally a solicitor, to hold power of attorney so that they may act on behalf of the client if required.

Mortgage Types

A table loan is the standard loan type in New Zealand and includes a principle and interest component. The repayments on your loan remain constant at the level you have chosen but will increase or decrease if interest rates rise or fall. You can select a loan term of up to 30 years - the interest rate and the term of the loan will determine the loan repayment amount.

An interest only loan may be selected for up to 5 years. With this type of loan, no principal payments are made and all repayments meet the interest cost. At the end of the term, the entire sum must be repaid or refinanced. For the most part interest only loans are used as an interim measure such as waiting for the sale of another property.

A revolving credit facility is similar to an overdraft facility and it offers all your bank accounts in one. Your savings, wage and salary payments all act to reduce your interest commitments and the reduced balance can be redrawn at any time. The variable mortgage rate applies, and a monthly account fee is usually payable. This type of facility offers excellent flexibility and can be a great help in reducing both the loan amount and interest costs, particularly where significant surplus income exists.

Variable or floating rate loans will mean that your interest rate can change at any time, but the bank will advise you in advance of any changes. The main advantage of a variable rate loan is flexibility. Borrowers can usually make lump sum payments and increase the amount of their regular repayments at any time without incurring a fee.

With a fixed rate mortgage the interest rate on your loan will remain fixed for the length of the chosen term - most banks offer fixed rate terms up to 5 years . Fixed rates offer certainty, particularly if you are concerned that interest rates will rise and you won't be able to afford an increase in repayments.

Fixed rates do not offer the same flexibility as variable rates however, most lending institutions will charge a fee if you want to make additional repayments although some provide limited scope to make lump-sum or additional repayments without incurring a penalty. It is also possible to avoid these penalty fees by making your lump sum payments after each fixed term expires and before you refinance.

You will probably face a penalty payment if you wish to break your fixed rate contract. Some lenders may not charge a fee to break a fixed term contract if interest rates have risen above the levels that you are fixed into. However, they will usually charge you a fee if interest rates have fallen.

In New Zealand there is also the option of splitting your loan. You can split your loan between a variable rate and a fixed rate (or several fixed rates), split it between a revolving credit facility and fixed rate, or even split it between all three. This offers significant flexibility and allows you to plan to repay future lump sum payments without penalty.

Should I use a Mortgage Broker?

Finding the mortgage that best suits your circumstances and requirements can be time consuming and stressful. There are many different factors to consider: interest rates, mortgage type, mortgage term, repayment options and lending institution. It's a highly competitive market and the choices can seem endless.

A mortgage broker can minimise the confusion that comes with so many choices:

• Mortgage brokers are experts in their field
• Their advice is independent
• They will do your financial homework for you
• They can negotiate with banks and lending institutions on your behalf
• They will help you find a solution that best suits your personal circumstances
• They get paid by the banks and so their service is free to you!

The request form will be sent to a third party and HiFX cannot take any responsibility for the services that they offer you. However, your feedback will dictate which companies we continue to refer.