How does a Mortgage Work – Examining Mortgages NZ

In New Zealand, an increasing number of residents are choosing to take out a mortgage on their home or business. As property in New Zealand is becoming more desirable, costs of living and owning property are increasing. Even increasing tourism in the Kiwi country is causing property costs to skyrocket. A quick Google search of mortgages NZ can give you an idea of just how quickly the landscape of property costs is changing. 

As a reaction to these high costs, people are required to take out a mortgage on their home or business properties but may not know exactly how that loan process works. While many mortgage lenders have tools at your disposal to answer questions about their specific loans, few will be patient enough to go through the process, step by step, with you. 

In order to solve that problem, we have compiled a master guide on how mortgages work, specifically mortgages New Zealand, and the best resources for hunting for your ideal mortgage. 

1) Mortgages 101 

A mortgage is a legally binding debt instrument made between an individual or business and a bank or other creditor. The bank or creditor will lend money in exchange for interest to be paid back on the loan and the collateral of a title of the property. With this system in place, the bank or creditor can be more confident that the money will be repaid because they technically own the property until it is. The title will become void upon the payment of the debt. 

Typically, a mortgage requires a deposit of a portion of the total loan. Once that is paid the mortgage holder will pay a fraction of the cost and interest rate amount in monthly or more frequent payments. For mortgages New Zealand, you can predetermine the interest rate for a set number of years as well, giving you security in the amount you will pay for a certain amount of time. 

While technically almost any property can be mortgaged, households are most common. 

2) A Closer Look at Mortgage Rates

Mortgage rates are probably the most talked about aspect of applying for and acquiring a mortgage. An interest rate is a percentage of the total loan that you pay on top of repaying the loan itself; this is how the bank or creditor makes money off of offering you a loan. 

Understandably, receiving the lowest possible rate is ideal when searching for a loan because it means less money out of pocket for you. Mortgage rates can vary considerably depending on a few factors including the federal-reserve which sets the federal funds rate and can affect short-term variable interest rates. 

Usually, New Zealand mortgage lenders will give you a fixed interest rate for a predetermined number of years ranging from 1 year to many more. After this, the interest rate is largely determined by federal fund allocations and the mortgage lender’s current status.

3) Factors to Consider Before Choosing a Mortgage Plan

Especially in New Zealand where there is a growing landscape of mortgage seekers, it can be difficult to decide on the right mortgage plan for you. Consider these things BEFORE you begin searching for the right mortgage lender and plan for you:

Consider how long you will be at the property you are intending to mortgage.

Also take into account the prediction for your financial status. Is it likely that you will continue to hold your position in your job for the length of your mortgage? Are you considering a new career that may mean a pay cut? Or maybe a promotion and a possible pay raise? If you decide to move homes and your mortgage is not completely paid off, you will need to pay it in full at that time or consider another possibility with the bank, which could get tricky. These sorts of questions are important because they help you determine exactly how much flexibility you have within your mortgage plan. 

Consider each potential lender’s customer service reviews and communication policies. 

If you are securing a lengthy mortgage plan for yourself, you should feel comfortable and open with that bank. Carefully research each bank’s policies on communicating with customers including how quickly they respond to customer calls and emails. Also consider what method you prefer to be contacted, by phone or email, and if the lender can manage to contact you this way. This can make a big difference if you have a problem with your plan or payments or even decide to refinance in the future. 

The first indictor of their communication style will be gauging how fast a bank answers your application to apply for a loan. 

Consider your credit score. 

Your credit score is an extremely important factor in determining whether a lender accepts your application for a mortgage. A credit score is something you acquire over time as you pay credit card payments or other loans. This indicates to your potential lender whether or not you have the ability to pay your mortgage payments. If you have a low credit score, this indicates that lending to you may be risky. In contrast, the higher your credit score, the better the chances are that you will repay your loan on time. A higher score can also give you better bargaining power in which to leverage the conditions of your mortgage interest rate and other factors of the loan. 

Use services such as Centrix, Dun & Bradstreet or Veda Advantage to determine your credit score for FREE (or a small fee if you need it fast) in New Zealand. It is often best to use all three of these or similar programs if you want an accurate representation of your credit score. 

Consider additional hidden or surprise fees you may be charged 

Start by asking about closing fees, loan origination, the cost of obtaining your credit report and application fees are a good start. Banks will unsurprisingly try to get as much money out of you as possible. Asking these questions ahead of time will help you factor them into your budget or choose a plan with a lower number of additional costs, overall. 

Consider if you have the option of buying points. 

Buying points allow you to lower your interest rate, if it makes financial sense for you and your mortgage plan. For example, if a plan offers a buying point valued at 1%, then buying a point would mean reducing a $200,000 loan by $2,000. Not all lenders will offer this so asking about it ahead of time can indicate the flexibility and option you have, should you want to use this in the future.  

4) Choosing a Mortgage Lender 

Once you have done your research and considered all of the above aspects, choosing a mortgage lender should seem a lot less daunting. To simplify it even more, use a mortgage rate comparison tool like Glimp’s FREE, easy to use option. Try it out now here (call to action). 

Glimp’s brand new mortgage rate comparison tool helps you to search hundreds of banks and hundreds of mortgage rates. By doing the work ahead of time for you, the process is easier and much faster; the whole process takes just minutes of answering simple questions. Glimp streamlines the process for you and lays out the calculator’s results in an easy to navigate, easy to understand way. Since it is searching the best and most reliable possible lenders you can be sure you are being presented with the most complete and reliable possibilities. 

How exactly does Glimp work? Try it for free now. 

Or read this example Glimp search to get an idea of the process:

Let’s say you are mortgaging a home for the first time. Select “mortgage” where prompted. 

Now enter the details “How much you would like to borrow?” and “What is your deposit?” The minimum borrow is 700,000 and the minimum deposit is 100,000. For the sake of this experiment, to make things easy, 500,000 will be the amount borrowed and 100,000 will be the deposit put down.

Once the information is plugged in, hit submit (really, that’s all you have to do). 

Then you will be taken to a page with all of your options laid out in a single, easy to understand page. You can even adjust your results with toggle buttons at the top of the page. Use the buttons to change the amount you want to borrow, the number of years you are contracted to pay the loan back in and the fixed mortgage rate years (1-5 or “Floating” which means the rate does not have a fixed rate of interest and can be adjusted at any time by the mortgage holder or creditor). 

These are the results of this experiment, in order of lowest to highest rate: 

• HSBC Premier – Fixed Rate: 3 Years, Interest Rate: 4.89%, Monthly Repayment: $2891 
• ASB Bank Special – Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• Bank Direct – Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• BNZ Special – Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• ICBC – Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• Sovereign - Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• WestPac - Fixed Rate: 3 Years, Interest Rate: 5.09%, Monthly Repayment: $2949
• TSB Bank - Fixed Rate: 3 Years, Interest Rate: 5.15%, Monthly Repayment: $2967
• Kiwi Bank - Fixed Rate: 3 Years, Interest Rate: 5.25%, Monthly Repayment: $2996 
• SBS Bank - Fixed Rate: 3 Years, Interest Rate: 5.25%, Monthly Repayment: $2996 
• The Cooperative Bank - Fixed Rate: 3 Years, Interest Rate: 5.25%, Monthly Repayment: $2996 
• Resimac - Fixed Rate: 3 Years, Interest Rate: 5.3%, Monthly Repayment: $3011
• TSB Bank - Fixed Rate: 3 Years, Interest Rate: 5.45%, Monthly Repayment: $3056
• ASB Bank - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• Bank Direct - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• BNZ - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• Housing New Zealand - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• SBS Bank - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• Sovereign - Fixed Rate: 3 Years, Interest Rate: 5.49%, Monthly Repayment: $3067
• ANZ Bank - Fixed Rate: 3 Years, Interest Rate: 5.59%, Monthly Repayment: $3067
• Westpac - Fixed Rate: 3 Years, Interest Rate: 5.59%, Monthly Repayment: $3067
• The Cooperative Bank - Fixed Rate: 3 Years, Interest Rate: 5.75%, Monthly Repayment: $3146
• Heartland Bank - Fixed Rate: 3 Years, Interest Rate: 7.58%, Monthly Repayment: $3810 

Using Glimp’s tool you can quickly and easily compare mortgage rates from hundreds of New Zealand providers. The effort from you is minimal and the results are better than if you had simply searched on your own. In order to compare mortgage rates from the comfort of your own home, at no cost to you, you need Glimp’s tool. 

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