How to build your property portfolio

Countless new investors aspire to have a complete real estate portfolio. However, knowing how to get there might be difficult when you’ve only recently acquired one real estate. With that in mind, here’s a step-by-step approach to growing your real estate portfolio. You’ll discover tips on how to build one yourself.

While each portfolio is unique, they all serve the same purpose: to assist real estate investors move closer to their investment goals. While many investors want to construct a profile that would allow them to attain financial independence, others utilise their portfolios to attain more practical goals, like as funding for their children’s college educations or planning for retirement.

How to use the equity in your home

Home equity is an investor’s best friend. It provides you with the ability to purchase a nicer home or invest. But what exactly is it? The gap between what you owe and what your home is worth is referred to as equity. The more your neighborhood’s values have climbed since you purchased, the larger your sweet piece of equity may be!

Begin with a property valuation to compute it. A real estate agent or a bank can help you with this. Depending on your circumstances, you may be able to borrow up to 80% of the value of your home.

Consider expanding your equity if it looks more like crumbs than the cake you imagined. Make higher monthly payments, create an offset account to decrease interest, or do an ingenious remodelling.

What’s your property investment strategy?

Because the whole objective of developing and managing a real estate portfolio is to help you reach your financial goals, the initial step is to have a strong vision for what you want your portfolio to accomplish.

Are you an investor looking for a new source of consistent monthly income to help you pay your bills? Or do you want to start a business that will help you to attain financial independence? Are you interested in rental yield depending on criteria such as property type, location, and the economy? Do you favor capital growth if you have a good income and your mortgage is paid off? Ideally, you’ll be able to find both. Or are you going to negatively gear for tax cuts?  Consult a specialist for tax and financial guidance. As the old saying goes, if you pay peanuts, you’ll get monkeys.

After you’ve determined your portfolio and investment strategy objectives, the following stage is to develop your real estate investing business plan. While this may appear to be a lot of work, it is worthwhile. A business plan will assist you in defining precise, shorter-term goals, moving closer to attaining your goals, and defining the tactics you plan to employ to meet those goals.

Additionally, while it is not required, if you want to bring in partners to assist you fund or manage your initial investment potential, having a comprehensive business plan might help persuade them that you are committed.

Do your research

When you’re prepared to go, the research process begins. You’ll discover which marketplaces are popular and which are not, and you’ll choose a location. Then there are rental yields, demographics, median pricing, and clearing rates… What will your rent-to-repayment ratio be? Can negative gearing do the job? Are there any upcoming public transportation improvements or new schools that will promote capital growth? Is there a high-rise projected for the next street? Your new pastime is investigation!

You should collaborate with a group of real estate industry specialists, including a real estate agent and a mortgage broker. They can assist you in determining the finest real estate bargains and financing options for you.

When it comes to purchasing an investment property, though, it all boils down to the numbers. Once you’ve identified a property that you believe may be a suitable investment option, conduct an investment property study to ensure it makes financial sense.

Getting finance

A qualified advisor will assist you in assessing your equity, determining how to unlock it, and recommending a course of action. They will also assist you obtain pre-approval, which is a lender’s in-principle confirmation that you may borrow money to buy a dwelling. There are no guarantees, thus the term “pre-approval,” but there is sense of security! Contact us to find out how we can assist you.

Ways to get additional borrowing on your existing mortgage

Additional borrowing implies that when you refinance, you borrow more money, increasing the overall amount of your mortgage. You may then utilise these additional funds to pay for things like house upgrades or school tuition.

Further advance

A further extension is when you borrow extra money from your current mortgage provider. Taking out a second advance is frequently utilised for home upgrades or as a down payment on a second house.

When you ask for a further advance, your mortgage lender will go over your budget with you and analyse your earnings and cash outflows (such as other loan obligations and living expenses) to ensure you can keep up with your payments.

It’s crucial to remember that the extra cash you take out will be tied to your home, which you may lose if you can’t keep up with your mortgage payments.

Refinancing

Refinancing is the process of transferring your mortgage debt to a new mortgage arrangement, either with your current lender or with a new lender. When you refinance, you can also borrow additional money by expanding the amount of your mortgage loan.

As you refinance, you will be asked if you want to borrow more money. If you wish to lend more, we will ask how much more you want to borrow and what you plan to use the funds for, such as home upgrades, debt consolidation, car purchases, etc.

Lenders may ask you more questions if your additional loan is considerable (often more than $30,000). However, a lender’s judgement on your application to borrow extra money will be based on their affordability assessment.

Second charge mortgage

A second charge mortgage is a sort of secured loan that borrows extra funds by using your home as collateral. You can use the equity in your house as collateral for a new loan. This implies you’ll need to have some equity (wealth accumulated in your current property) in order to apply for more loans.

To determine how much equity you have in your house, subtract the amount owed on your first mortgage from the value of your property. So, if your house is worth $750,000 and you have a mortgage for $500,000, your capital or equity is $250,000.

To get a second charge mortgage, you must first obtain approval from your present mortgage lender and then demonstrate to the second mortgage lender that you can afford to make the instalments on both loans.

Is it a good idea to borrow more on your mortgage?

The benefits and drawbacks of borrowing more on your mortgage are determined by your specific financial situation.

There are risks associated with extra borrowing because you would be borrowing over your property. This implies that if you cannot keep up with your repayments, your house is in jeopardy. With this in light, it may be worthwhile to investigate alternatives to borrowing on your mortgage, such as obtaining an unsecured loan.

If you opt to receive a further extension on your mortgage, it may impair your future capacity to refinance. You may have to pay a charge to exit your existing mortgage arrangement, and the process might take 6-8 weeks.

You must ensure that the value of your home has grown above the amount borrowed for the mortgage (known as having equity in your property). If you want to borrow more on your mortgage, make sure you can afford to make the payments. If you are unable to make your repayments, your house may be seized by the lender.

What can I use the additional money for?

Whenever you refinance, you will be asked if you want any extra borrowing. If you say yes, you will be asked you how much amount you want to borrow and what you plan to use it for. For example, you will be asked to select one of the following options:

  • Home improvements
  • School fees
  • Divorce settlement
  • Debt consolidation
  • Car purchase
  • Other property purchase
  • Other

If you think this is something that will help you make some of those renovation or other finance plans come true then give us a ring and we can discuss further on how can we make it happen.

Ways to avoid getting caught up in property FOMO

 

Fear of missing out (FOMO) is your worst enemy as a buyer in today’s market, as it can quickly lead to many years of regret from the minute you unpack in the incorrect home, wondering, ‘What have I done?’

Isn’t it true that it’s easier said than done? However, we are going to discuss with you some of the consequences of falling into the FOMO trap and what you can do to prevent it.

  1. Commit to your checklist of must-haves.

Many are so eager to get into a home that they are bypassing all of their must-haves and bidding on properties they would otherwise pass over.

In a house, do not lose sight of what is important to you. Before making a choice, take a deep breath and inspect the property at least twice. On the second visit, the rose-coloured glasses usually come off, allowing you to examine the property and its surroundings realistically.

  1. Do not fall for the hype.

When you’re in the middle of things, it appears that values will only rise, and stock will continue to dwindle. Looking at prior hot market histories, we can observe that some potential vendors are inspired by outrageous sales results and decide to sell as they feel they will make a fortune.

This implies that more homes will come on the market, buyers will have more options, and they will be more likely to avoid those properties in the incorrect location with the expensive price tags. Clearance rates fall, the market cools, and buyers have less motivation to buy in a hurry. It’s better to wait than overcommit or make a wrong decision. When buying, maintain your cool.

  1. Pay attention to what is going on in the world

As previously stated, the housing market typically goes through a period of correction, but this is not normal given that we are currently in the midst of a pandemic. While we can’t anticipate the consequences of these programmes’ termination, one thing that will ultimately change is interest rates, so be careful to factor any interest rate increases into your future plans – after all, purchasing a home is a long-term commitment.

Seek expert advice from a mortgage broker before entering the housing market during these periods. We know how the market works and provide some degree of insight on how things can work out in the future.

A tip: Buy within your means. It has never been more vital to complete your finances and due research before making a commitment.

  1. Do your own research

It is better to remove the status of the market to some extent when buying, so best not to believe what the latest media reports are saying and instead focus on conducting your own study. Speak to real estate agents about recent deals or check out the sold section of real estate websites to get a sense of current prices. You should pursue hot, warm, or cold markets in the same manner: only buy a quality home that checks all of your boxes at a price you can afford.

Do your own investigation and do not believe everything you hear or read in the news.

  1. Get a second opinion

We have all heard stories about a friend of a friend ready to make an offer on a property that her spouse hadn’t even viewed.

The moral of the story is that two sets of eyes are better than one. Even better, seek a second opinion from someone who isn’t emotionally invested in the purchase, has buying expertise, and it not experiencing FOMO. A fresh perspective can make a lot of difference!

Buying a home is a lengthy process and expert help can always come in handy. We are licensed Financial Advisers who understand mortgages and property investments. Working with us leads to better outcomes across all areas of advice.

How to buy property when you cannot save a big deposit

Property prices in New Zealand are once again on the rise. As prices rise, so does the amount needed for a deposit. Even with low interest rates, this makes entering the market more difficult.

Entering the real estate market is certainly difficult. There are, however, methods to make things a little simpler, such as taking advantage of government incentives, having your parents act as guarantors, or using a low deposit home loan.

If you have any of these choices, it may make all the difference and help you finally break into the housing market.

  1. Buy with a low deposit

When purchasing property, a 20% deposit is considered the usual. However, with real estate prices so high, it is just not a viable option for many first-time purchasers.

Many lenders provide house loans to customers with deposits of less than 20%. These low deposit home loans are frequently comparable to other loans with one exception: the maximum insured loan-to-value ratio (LVR).

Do not be confused by this technical mortgage phrase. The maximum insured LVR simply indicates how much you may borrow and how large your deposit must be. Most house loans have a maximum LVR of 80%, which means you may only borrow a maximum of 80% and will require a 20% deposit to receive the loan.

There are three things to be aware of when buying with a smaller deposit –

  • Lenders mortgage insurance premiums: If your deposit is less than 20%, your lender will charge you lenders mortgage insurance (LMI) on top of that. This safeguards the lender in the event that you are unable to repay the loan. It can increase the cost of your loan by thousands of dollars.
  • A lower deposit means you’ll have to borrow more: Buying with a modest deposit increases the amount of your loan. As a result of borrowing more, your repayments will be higher. It is the cost of entering the market more quickly.
  • Lenders will conduct a more thorough review of your application: Borrowers with a low deposit may have to work harder to demonstrate their ability to pay back. When you apply for a loan, lenders will thoroughly analyse your income and expenditure.
  1. Get a guarantor

If your parents own land, they could be able to assist you without charging you anything. If your parents agree to act as a house loan guarantor, they will effectively guarantee to pay back a portion of the home loan if you are unable to. This entails using their property as collateral for your loan.

This may seem risky, and it very well may be! However, if you are certain that you will be able to make your payments and your parents are agreeable, it is a possibility.

The guarantor option is not suitable for all property buyers. It entails having parents who are financially secure to some extent. You should also assess if it is worth the potential danger of entangling your assets with your parents in such a complicated way, but if planned right is sure an excellent option.

  1. Take advantage of government support

If you are a first-time home buyer, the income and property price limits for the First Home Loan and the First Home Grants programme has increased.

Borrowers who qualify for the First Home Loan scheme can receive a home loan with just a 5% down payment if their annual income is less than $95,000 for one person or less than $150,000 for two or more individuals purchasing jointly. These loans are sponsored by Kinga Ora and are available through partnering lenders (e.g., banks).

The First House Grants scheme provides first-time home purchasers with a lump-sum payment from the government of up to $5,000 for existing residences and $10,000 for new dwellings.

The First Home Grant has the same qualifying conditions as the First Home Loan, with the exception that you must also be a KiwiSaver member to obtain a first home loan.

If you have been a member of your KiwiSaver programme for at least three years, you can apply to withdraw your KiwiSaver funds to use towards the purchase of your first property. The three years do not have to be consecutive, as long as they sum up three years of contributions. For example, if you’ve been a KiwiSaver member for three years but had a six-month savings break, you won’t be eligible for the First Home Grant until you’ve contributed for another six months.

Deposit is a big part of the buying process, which is why careful planning is required beforehand to ensure that the loan application gets approved. We are skilled mortgage brokers with vast experience in lending across retail, business, commercial sector, so if there is anything stopping your purchasing your first home, let us help.

Ways to increase your borrowing power for a property

Given property values on the rise, understanding how to enhance your home loan serviceability can mean the difference between obtaining the keys and being shown the door. Evaluating your borrowing capacity allows you to determine what kind of homes you can afford to purchase. Prospective homeowners and investors frequently spend time looking at properties that are out of their price range as they do not realize how much time they will be able to borrow for a home loan.

Simply explained, borrowing power is the mortgage amount that a lender is likely to accept you for depending on your financial position. A higher borrowing power indicates that lenders believe you will repay a larger loan.

What is home loan serviceability?

Every time a lender loans money to a home buyer, they are effectively making a business investment. As a result, they must determine whether you are a safe bet, which they do by evaluating your house loan serviceability.

It is not merely just for the benefit of the bank. If you obtain a loan and are unable to repay it on time, your ability to obtain future loans will be hindered due to a blemished credit score.

How it is calculated

The serviceability is estimated by adding all of your revenue, including your salary, rental income, and investment interest, and then subtracting your spending and other repayments, such as your various loan repayments.

Although, it is not always clear, especially when factors such as your employment status (i.e., contractor, freelancer, or full-time) and the number of dependents you have are considered. Lenders will calculate your mortgage at roughly 2.5 percent higher than the market rate, or at 7.5 percent – 7.8 percent, as part of the process of assessing your serviceability, to assure that if interest rates rise, you will still be able to confidently pay back your loan.

The benefits of increasing your home loan serviceability

The good news is that house loan serviceability is not a fixed condition; there are steps you can do to enhance it and thus increase your chances of obtaining a loan at a fair rate from a variety of products. Another advantage of higher serviceability is possessing a larger buffer to reduce risk if interest rates rise. This will relieve a lot of stress and provide you with a secure net to fall back on if something unexpected happens.

Here are five things recommended to improve your home loan serviceability.

  1. Reduce credit limits

Even if you have no debt on your credit card, your limit will be treated as prospective debt when lenders evaluate your situation. As a borrower, having fewer credit lines and eliminating that potential risk will make you much more appealing to the lender. You have the ability to modify your credit score if you are aware of it. Even if things are not looking good, commit to making regular, on-time debt and bill payments. Remember to check your credit report for mistakes, which might occur over time.

  1. Aim for stable employment

Some lenders may consider self-employment or contractors as a danger. If you are in a new position and still on probation, this can have an impact on your serviceability; thus, it is preferable to apply for the loan after you have completed probation, as this allows you to establish a consistent and steady revenue stream. Although with the right expert by your side it is possible to get your application approved.

  1. Finish off BNPL loans

Buy Now Pay Later (BNPL) products are now widely accessible in most retailers in New Zealand; they are simple to use and may be viewed as an excellent method to manage cash flow; nevertheless, many individuals are unaware of the impact they have when seeking for a home loan.

BNPL activities frequently appear on credit reports, and generally, they have the same impact as credit cards in demonstrating when you are over-committing yourself through these services. Remember to pay off all of your debts before applying for a loan to improve your serviceability.

  1. Curb spending

Before purchasing a property, it is essential to plan and save money, not only for the deposit but also to prove your spending habits are healthy to the lender. As you begin to consider acquiring a house loan, it is critical to reduce your purchasing habits.

The lender will need to examine your bank statements when you borrow money, and if you spend a lot of money on takeout and leisure, this will impair your serviceability. Banks need to see that you have appropriate spending habits so that they can trust you to meet your repayments.

  1. Choose the right lender

Determine what you want and browse around for it. There is now so much competition in New Zealand, and with rates constantly changing, there is no better time to locate the finest products on the market.

So, if you are seeking for low-interest rate for your newest purchase, contact our experienced mortgage broker immediately and get your dream home journey on track.

Benefits of Refinancing

Refinancing entails repaying your current home loan with a newer one. This could be with a new lender or a current lender, and it could be for a number of reasons.

The refinancing process is comparable to the application process for your original loan, and hence refinancing can take four-eight weeks on average. After all, the process will vary depending on your specific scenario, and some lenders may even be able to provide a quick refinancing. In this section, we will look at the refinancing procedure and how long it can take to refinance your house loan.

  1. Save money

In today’s market, no homeowner can stand to believe that their loan is a fair deal. If you have held your mortgage for a few years, there is a good possibility you may save money. You may be eligible for more savings than you anticipate by achieving a lower interest rate and lowering your mortgage repayments. One of the most compelling reasons to refinancing is to lower the interest rate on your current loan. Historically, it has been assumed that refinancing is a good option if you can cut your interest rate by at least 2%. Conversely, many lenders believe that a 1% savings is a sufficient incentive to refinance. Lowering your interest rate not only saves you money, but it also accelerates the pace at which you create equity on your property and can shrink the amount of your monthly payment.

For example, a 20-year fixed-rate mortgage with a 5% interest rate on a $200,000 home has a monthly principal and interest payment of $1,056. But y our payment would be $970 if you refinanced your loan at 4%. The greatest immediate advantage of refinancing is that it allows cash-strapped borrowers to find room in their monthly budget. This could be useful if you anticipate an increase in your cost of living (for example, if you are expecting a baby) or if your income has reduced (from dropped hours or lost job).

  1. Pay off your mortgage sooner

By refinancing to a lower interest rate, you reduce your overall interest payments and, as a result, your overall mortgage sum. In many instances, borrowers wish to refinance in order to reduce the duration of their existing loan from 25 years to 15 years. Based on the rate of interest you qualify for, this may only have a minor impact on your monthly budget while helping you pay off your mortgage quicker. It is important to understand that it does not have to take 25 or 30 years to pay off a mortgage.

  1. Equity to fund purchases or lifestyle goals

Refinancing is frequently utilised to open up equity in your current property to finance purchases or lifestyle ambitions. Gaining access to equity, for example, could assist you in purchasing an investment property, renovating, or building, among other things. The amount of equity you may use varies by lender, which is why having a home loan specialist on your side can make all the difference when it comes to doing the paperwork.  When you refinance, you can also utilise some of the money from your home’s worth to pay for additional expenses: reinvesting that money in other properties or sending their children to college or something like in those lines.

  1. Debt consolidation

Homeowners frequently use the equity in their houses to finance large bills such as a home renovation or a child’s higher education. These homeowners may explain the refinancing by claiming that renovations increase the value of the home or that the interest rate on the mortgage loan is lower than the interest rate on borrowed money from some other source. Through the process of ‘debt consolidation,’ refinancing your house loan can provide an opportunity to consolidate your debt and perhaps reduce the overall interest you are paying on several debts. It entails consolidating many high-interest debts into a single lower-interest debt – which may be your home loan – and may result in a cheaper overall monthly repayment.

  1. Bring on better loan features

Several Kiwi homeowners may have mortgages that are inappropriate for their needs or have “bells and whistles” that are underutilised. Having the correct resources can save you a lot of time in the long term, so it is worth receiving professional advice on how to grasp the various loan options available and how you can benefit from them.

Get professional advice

Everyone’s circumstance is different, which is why it is important to seek expert assistance while looking for a refinancing solution that is right for you. Our mortgage broker is up to date on what is available in the market and the benefits of various loan options. So, if you are seeking a low-interest rate to cut your mortgage repayments, or if your financial position has changed and you are ready for an overall home loan health check, contact us and get your financial health back on track.

Benefits of a pre-approved home loan

Things tend to move quickly once you have found your dream home. When applying for a mortgage, it is crucial to realise that the lender generally finances 80% of the house value, as well as several other aspects such as equity, income, and so on. In this instance, lenders play a critical role in getting your ideal property, particularly when our budgets are limited.

Before we get into the benefits of pre-approved loans over traditional loans, it is important to understand what a pre-approved loan is and how the process works.

What is a pre-approved home loan?

A pre-approved home loan, as the name suggests, is a loan that is granted before the property transaction is completed. This is the same process as applying for a conventional loan, but the difference is that you do not need to supply any property-related papers.

Lenders require a few necessary documents for validation, such as an income tax return, driver’s licence, proof of address, bank account statements, and proof of income such as payslips, etc. This approach also includes a processing fee, which is adjusted when the loan is disbursed.

Lenders will also request your credit score to determine your creditworthiness. If the applicant already has a loan, the previous loan amount will be deducted from the approval limit. It gives you conditional permission for a mortgage or an investment loan. It normally lasts for a set period of time – usually three to six months, but this can be extended with a review and request – and acts as a guideline for how much you can afford to spend.

Moreover, once the validation procedure has been completed, the lender will issue the applicant a letter of pre-approval for a home loan. This pre-approved home loan provides a set time frame for the borrower to finalize the property purchase. If the applicant does not get a property within the given time frame, they must reapply for the pre-approved loan because the processing fee is not reimbursed or altered later in the loan application.

Now that you understand the basics of a pre-approved loan and the process, let us look at its benefits.

Benefits of having a pre-approved home loan

Final loan disbursal becomes fast and easy– With the majority of loan verification done early on, the loan disbursement process becomes relatively fast and simple. The only documents awaiting validation are the property documents. The sanctioned loan amount is disbursed as soon as the documents are confirmed. This also benefits buyers when the property has a shorter transaction window and a term for the process.

House hunt becomes easy and more focused– Real estate holds a variety of various houses, such as apartments, units, and independent houses, among others. If the applicant already has a budget in mind, the search for a home becomes much easier. Loan pre-approval tells you how much you can afford, allowing you to shop for properties that are within your price range rather than wasting time looking at properties that are out of your price range. For example, a person with a pre-approved loan of $800,000 will hunt for a home in the $800,000 to $900,000 price range. There is no worse feeling than being unable to close on the home you want to buy. The borrower is in a better position to hunt for a suitable house with a pre-approved loan as being aware of the budget.

Negotiation process becomes easy– There is a better chance for you to bargain with builders or sellers once you have a pre-approved loan, and they will take you seriously in comparison to any other prospective buyer as they have proof that you are 100% invested in purchasing. Estate agents can see that you are a serious buyer who is ready to act swiftly if your loan is pre-approved. This provides you with more bargaining power when negotiating prices with sellers. This is because the bank is confident in your finances and ability to repay, and they are more likely to convert into genuine purchasers rather than broad inquiries. With pre-approved loans, along with the low-interest rates, you can also choose the loan’s repayment term, which allows for more affordable installments.

Finances are more planned– pre-approved loans enable a person to understand his or her financial situation and value. Furthermore, this allows a person to manage their savings and make a down payment effectively. With a loan pre-approval in hand, you are less likely to make an offer or pay a deposit on a home only to discover that you are unable to acquire financing to finalise the acquisition.

Bid with confidence at auctions- Pre-approval is necessary if you are purchasing a property at auction. It shows that the highest bidder is committed to the purchase when the hammer falls at auction – there is no cooling-off period. With loan pre-approval in place, you can confidently bid up to your approved loan amount.

To sum up, getting pre-approval for a home loan does not necessarily ensure that your loan will be accepted. Property and related paperwork, as well as the bank’s due diligence criteria, play an important role. Furthermore, the loan application must be submitted within the sanction period. Aside from these considerations, a pre-approved loan always provides an advantage that normal loans do not.

If you are ready to take on the journey of homeownership, reach to our expert mortgage broker and we will provide you access to a wide choice of lenders, including many major banks.

We understand these lenders’ loan pre-approval standards, making it faster and easier for you to apply for pre-approval. And, once you have discovered your dream home, we can speed up your official loan application by preparing the paperwork, filing the application, and following up on your behalf.

Tips to follow for better home loan repayment

A home loan is an excellent source of financial aid that helps you in purchasing your dream home. A home loan is a long and major commitment and repaying consistently over a long period of time may be far more difficult than applying or receiving approval from the bank.

When applying for a home loan, you must go through a stringent documentation and approval process. Since the loan amount is large, lenders follow a strict procedure, as even the smallest inaccuracy might result in the application being rejected.

As a homeowner, the loan repayment procedure can be financially draining because you must repay on time without failure, or it can affect your credit score and future. Furthermore, the loan’s interest component adds to your troubles. Repayment, on the other hand, does not have to be a chore if you plan ahead of time.

Let us learn about Home Loan Repayment Tips:

  1. Loan Prepayment: You can reduce your interest payments by prepaying the loan amount. However, you should confirm this with the lender because some charge a penalty or require you to pay a fee if the interest rate is fixed. Although with floating rates loans it may be easier to prepay.
  2. Be on the lookout for cheaper interest rates: Find out if lenders are offering lower interest rates so you may quickly refinance or transfer your home loan balance. Refinancing can be a wise move because it decreases the interest burden by transferring the outstanding principal amount from the previous lender to a new lender at a reduced rate. This is a simple and practical technique to save money on interest and use it to meet other financial responsibilities. Many people become complacent when it comes to paying their mortgage. They simply continue to pay what the lender demands of them, with little regard of the industry. Lenders provide different deals at different periods of the year. With the right timing, you could switch your mortgage and take advantage of an array of discounts that allow you to repay your home loan faster.
  3. Get a shorter-term loan: The longer the loan term, the greater the interest rate charged by the lender. If you are financially secure, opt for a shorter term. This ensures that the Home Loan repayment procedure is expedited and that the interest rate is low.
  4. Larger down payment: Typically, a house buyer is expected to make a 20% down payment at the time of purchase. Although, if financially possible, it is better to give in a larger down payment so the loan amount can be decreased. This may help to cut the interest rate even further, and the home loan payback will be faster.
  5. Reduce excessive spending: This is self-explanatory, but it bears mentioning. Committing to paying further than the set payments into your loan and working towards debt-freedom goes hand in hand with reducing wasteful spending. Sure, giving up those extra little luxuries will not be easy, but even the modest amount paid into your repayment instead can make a great difference.  Every additional payment accelerates the repayment of your principle debt, saving you hundreds of dollars in interest.
  6. Create an offset account: Consider opening an offset loan account if you do not already have one. Offset accounts function by linking your savings account where your paycheck is deposited, to your home loan account; the value in this account is offset against the balance in your home mortgage account, and you are only charged interest on the difference. With your repayments remaining constant while you pay less interest, more of your repayment goes towards paying down your principal loan, making your money do the hard work for you.
  7. Assume your mortgage has a higher interest rate: For example, your loan is on a 4% interest rate and if you make the set required payments, the loan will most likely last between 20 and 30 years. So, why not use your own interest rate on the mortgage? If you are at 4%, repay as if the loan had a 5% or 6% interest rate. These additional “interest payments” are not applied to the interest at all but will instead cut the loan principle. With this method, you can pay back the loan faster, and you will not be caught off guard if the variable rate rises. With this, do check with your lender if there are any penalties if you make extra payments to avoid overpaying and wasting money.

In conclusion, whatever path you choose, the first step is always to work out your finances beforehand. A good starting point is to discuss with a mortgage broker and find out the ways best suitable to your financial and mortgage conditions. Reach to us and we help you plan your repayments to make sure your loan is settled as quickly as possible

Getting a second mortgage when buying a second home

New Zealand has always embarked on its love for properties as a way of building wealth. Buying a second home either as an investment goal or as a holiday getaway is a smart way of making some additional income or wealth to include in the retirement fund. It is just as exciting and equally daunting as buying your first property with the addition of handling two real estates at a time.

There are many reasons that can aspire you into buying your second home like down or upsizing from your current property, supporting a growing family, or starting out a rental property portfolio, etc. Owning a second property can be an appealing prospect and is both a luxury and a challenge. You will need make to some really important decisions when looking at buying your second real estate. In addition, being an existing property owner, you are likely to already have the wisdom from your past purchase experience to draw on. However, effective ongoing market research prior to buying an investment property will help save you thousands.

If you would like to apply for a second mortgage, it is important to keep in mind that affordability checks have become increasingly stern. You will need to prepare evidence to the lender that you are fully capable of covering the cost of two mortgages at once. Is it good to check with a mortgage broker when calculating your capability of buying a second home, as they have the market knowledge and know how to easily deal with the application process.

One of the first steps towards buying a second home is to establish how much deposit do you have. If you have considerable equity in your first property, it can be an excellent start towards buying your next one. The first property can be used as a stepping stone towards the next one, as you have the option to use that equity to fund the deposit for the second mortgage.

Equity is the percentage of your property outright owned by you. It is counted as the total market value of your property minus the outstanding mortgage you owe the lender. This value also includes the amount of profit you have gained in the duration of owning the property. As a general rule, you can borrow up to 80% of your existing property.

For example, if your first property is worth $800,000 and you owe the lender $400,000 on the mortgage, you will have $240,000 in equity you can invest in the new purchase.

To get the best of your existing property, it is advised for buyers to have paid off some of their mortgages to build the equity required to move ahead with purchasing an investment property. A minimum of 2 to 3 years is a good period to starts investing since your first home purchase.

If your current property does fulfill the basic requirements of being used as equity, or if you cannot afford to have two mortgages, you can choose to fully sell it and buy a new one. There can be many underlying conditions for one to consider this option like having to upsize for a rapidly growing family, wanting a new build property, etc. When taking this route, it is best advised to sell the existing property before you buy the next one. This allows you the advantage of knowing the exact amount you have on hand for the deposit and the price range you can potentially search into. With this, you will also have the leverage for being an unconditional buyer, which places you in a solid position to negotiate when you find the perfect property.

There are a lot of different things to consider when buying a second home, our experienced broker would love to help you go through the process and all aspects of purchasing a second property. If you would like to know more about growing your property empire and make your mortgage work for you, talk to our expert broker today.

What role does my credit score play in mortgage application?

Buying a new real estate is hard work in itself and requires financial preparation. There are many steps involved in obtaining a home loan from collecting all the right documents, talking to the mortgage broker, and filling out the application form, all while hunting for the perfect home.

Before you move ahead with all those tasks, one aspect to consider in the process is how your credit score plays a vital role on your chances of successfully applying for a mortgage. Studies have revealed that a vast amount of Kiwis have less than enough knowledge of how their credit score is one crucial factor that impacts their chances of securing a home loan.

For most people, a home loan is the biggest form of a mortgage they will ever get. With it being of such importance, the mortgage lender’s main concern is to find out whether you are capable of paying the debt back. Most lenders will take credit score into consideration in addition to other factors like income, occupation, and age when evaluating your home loan application.

It is important to understand the effect of credit score for borrowers, as the chances of missing out on a better deal can potentially lead to losing thousands of dollars on higher interest rates, or worse getting an outright denial for a mortgage application.

Understanding credit score:

A credit score is a tool that helps lenders find out whether you qualify for a particular mortgage, service, or credit card. It is a numerical representation of a borrower’s creditworthiness or reliability. It shows the lender how well the potential borrower has been managing their finances, including their ability to make mortgage repayments. The score generally ranges from 0 to 1000, from 1000 being the highest score to 0 being the lowest. According to Centrix, one of the main credit reporting agencies in New Zealand, a low credit score ranges from 0 to 494, a fair score ranges from 495 to 695, a good score from 650 to 768, a very good score from 769 to 845, and lastly the highest and excellent score falls between 846 to 1000.

If an applicant falls in between the low and fair range, the lender will proceed with the application with some caution. Some lenders may be willing to grant a loan but may do so at a higher interest than others as the risks involved for them is more.

With the applicants that are anywhere between the good to very good range, the chances of approval on the application are positive. This is also the average credit score of residents in New Zealand.

For the scores that fall within the excellent range, the risk involved for lenders is considered very low with the highest chance of easy loan approval. Lenders are content with applicants of this score and may even offer them better loan options.

The credit score contributes as a vital part of the financial products you take out throughout your life. To ensure that your score stays over the acceptable limit, it is important to understand various factors that can affect and change it.

  • Monthly repayment history: These repayments include everything from finance, credit card, car loans, hire purchases, insurance, student loans to any other form of credit or loan. They also include payment history of daily expenses such as phone, gas, energy, and electricity bills. Any late or overdue payments will most likely have a negative effect on the score, if there are more than one it can have a substantial impact on the score.
  • The duration of one’s line of credit, as well as their newest and oldest accounts and the history of how active these accounts have been.
  • Any new account that has been opened recently.
  • Court notices and judgments under the applicants, in regard to Non-Asset Procedures (NAP), outstanding debts, bankruptcies, and Summary Instalment orders (SIO).
  • The amount of available credit being used and total debts.
  • Your employment history.
  • The number of hard credit searches on the credit report, which appear when one actively makes an application for a new credit or loan. Every time an application is submitted, it leaves a footprint on the credit file which lenders use to make the decision on whether to grant your mortgage.

There are many ways one can improve their credit score. One of the easiest ways to ensure a good score is by making all repayments on time and closing any overdraft credit accounts.

Although having a good credit score is important, a bad credit does not necessarily mean that your goal of owning a property is over. We have worked with clients from all walks of life, reach out to us today if you dream of owning a house, and we can advise and help you find the right mortgage solution for your unique requirements.