We are specialist Mortgage Advisers. We don't offer insurance advice. However, we believe that it is important for our clients to understand the insurance options available to them and to make an informed decision as to which insurances might be suitable for their particular circumstances at various stages in their lives.

We are fortunate to have a great working relationship with a specialist Insurance Adviser who has many years of experience with a range of personal risk insurances. Bridget Klinac has helped to put together some articles designed to shed some light on the various insurance products, starting with perhaps the most basic product, Life Insurance.

So, what is Life Insurance?

Life Insurance pays an agreed cash lump sum upon the death or terminal illness of a person (the life assured).

The proceeds of a Life Insurance payout (which is not taxed) might be used to repay or reduce debt, provide surviving dependents with an income to assist with their future living costs, provide an education fund for children, pay funeral-related expenses or a range of other things.

Life Insurance can be an extremely cost-effective way of covering the risk of dying prematurely and potentially leaving your loved ones in a financially fragile position. The reality in New Zealand now is that many households require two incomes to cover mortgage instalments and living expenses, and if one of the income earners was to die prematurely, the family’s ability to meet ongoing expenses could be severely impacted. This is where Life Insurance can help. For many people, Life Insurance seems too hard, too confusing…but, it’s also too important to ignore, and advice and support is close at hand.

Having some basic Life Insurance is easy to arrange and can be life-changing for your loved ones if needed, plus it can give you peace-of-mind knowing that if the worst happens, your family members will have the financial support they need.

If you think it would be a good time to review your insurance options please get in contact with us, or contact Bridget, directly, on phone 021 977 924 or email bridget@prosper.org.nz.

Bridget’s Disclosure Statement is available on request.

If anyone ever tells you that paying your mortgage instalments fortnightly rather than monthly will provide significant cost savings, please consider this article before following their advice.

It is an urban myth that there are significant cost savings available by simply changing the frequency of the loan instalments. If the loan is geared to a 25-year term (and if the loan terms don't change) you will pay about the same amount in interest, over 25 years, whether your loan instalments are fortnightly or monthly. Let's take an example (using figures derived from the independent, Government website www.sorted.org.nz):

Loan instalments for finance of $500,000, on Principal & Interest terms over 25 years at 5.00%pa = approx. $2,923 per month. Over 25 years you would pay interest of approx. $376,885.

Loan instalments for finance of $500,000, on Principal & Interest terms over 25 years at 5.00%pa = approx. $1,348 per fortnight. Over 25 years you would pay interest of approx. $376,392.

The difference is approx. $493 over 25 years (a little under $20 per year), which could hardly be considered significant.

I think that the urban myth came about due to a misunderstanding, by some, around the benefits of halving the monthly loan instalment and paying that amount fortnightly (which results in a higher fortnightly instalment than it would have been if it had been calculated over the actual loan term).

Loan instalments for finance of $500,000, on Principal & Interest terms at 5.00%pa paid at approx. $1,461 per fortnight (i.e. half of the $2,923 per month detailed above) would enable borrowers to repay the finance over approx. 22 years. Over that term they would pay interest of approx. $316,226 (approx. $60,000 less than the above calculation).

So the real benefit lies not in the frequency of the payment, but in paying more than the minimum required amount (regardless of whether payments are made monthly or fortnightly). A number of banks have policies that enable regular instalments on both fixed and variable/floating rate loans to be increased. We will continue to encourage our clients to set up their loan instalments that best suits their circumstances and to reduce debt faster than they need to, if they are in a position to do so, as there are a range of benefits that they can enjoy as a result.

If you’re keen to know more about your options, please get in touch.

It’s a phrase you have probably heard before, and it has particular relevance to the way in which we conduct our business.

When it comes to matters relating to mortgage finance and buying or selling property, people can sometimes feel uncomfortable asking certain questions, as they don't want to risk receiving a response that makes them feel embarrassed about their lack of knowledge in those areas. A couple of new clients have recently advised me that they received demeaning responses from their banks, to questions they had put to them, which had led to them approaching us.

Any adviser, regardless of the industry or profession, should be willing to respond to their client's questions in a respectful manner, without making their clients feel embarrassed. Nobody wants to experience demeaning treatment. We know that, and we encourage our clients to actively communicate with us, without concern about the tone of the response they will receive from us.

We don't expect our clients to know everything there is to know about the business that we specialise in. Our clients have their own particular areas of expertise; we have ours. Bank policies are constantly changing so there are likely to be some questions that even we might not be able to answer straight away. But we will determine those answers and respond in a respectful manner.

One of the quotes that the English Philosopher, Francis Bacon, is renowned for is Knowledge is Power, and I often advise my clients that the more they know about the property buying process, the less stressful it is likely to be. We are here to ‘bridge the gap’ between what our clients know, and what they’d like to know. If you have yet to experience the full extent of our service you probably won't have a full appreciation of the value that we can add to the process.

Don't be afraid to ask questions of us. We are here to help.

I like the saying “you don’t know what you don’t know” and I think that it can be applied to many borrowers when it comes to mortgages. There is a lot more to mortgages than most borrowers (or would-be borrowers) realise, and many borrowers just don't know what questions to ask. Many focus solely on the interest rate (which is understandable, given that banks tend to promote themselves on rate). However, it is not all about the interest rate, and many borrowers have found themselves in unenviable situations due to a lack of awareness of that reality.

For example, without receiving advice around the potential options, a borrower placed all of their mortgage debt on one fixed rate that was slightly better than another bank was offering at the time. However, when that fixed rate expired, the borrower discovered that the refix rates available at that time were considerably higher than the rate they were coming off. Unfortunately for them, they had no option than to choose from the rates available at that time. And those rates applied to all of their debt (ie not just part of their debt). Had they been aware of, and taken other options at the time that they initially fixed the rate, the outcome might have been quite different.

Perhaps the most valuable attribute of a good Mortgage Adviser is his or her ability to provide quality advice that could end up saving their client a whole lot of stress, time and money. A Mortgage Adviser’s ability to determine the most appropriate lender for the client’s circumstances and goals and to prepare a well-considered finance application is certainly important, as is their experience that they call on to structure the finance in the most appropriate way. However, the importance of providing quality advice (in addition to the above attributes) throughout the process should not be underestimated.

Rather than trying to make their own diagnosis of potential risks, and prescribe their own solution, I recommend that borrowers engage a recommended Mortgage Adviser with the knowledge and experience to guide them through the process. This recommendation applies to those with existing mortgages as well as would-be borrowers.

We recently ran a promotion aimed at homeowners with mortgages, encouraging them to take advantage of a free mortgage review. The results were surprising. It seems that many borrowers are indifferent to (or don’t fully understand) the fact that there could be other options (within their current bank, or perhaps with a different bank) that could potentially save them tens of thousands of dollars over the term of their loans, and shave years off their loan terms. It is important for borrowers to understand that as their situation changes (which it will) they should consider having a review, or simply talk to a Mortgage Adviser to ensure that they are taking advantage of opportunities and / or managing your risks.

We offer a free, no obligation mortgage review (essentially a mortgage Warrant of Fitness) to anyone that is willing to ask for one. We won’t pressure anyone into changing anything, but we will recommend changes when we believe they would be beneficial. We don’t know what opportunities for improvement might be available until we undertake the review, and if everything looks fine, we will say so. For those that arranged their finance through a bank, I think it would be a wise choice to give us a call (perhaps after checking out our Facebook reviewsor website testimonials).

Many aspiring homeowners believe that in order to buy a home, they need to have a deposit of at least 20% of the property's value. What a lot of people don't realise is that the banks are able to lend 10% of their new lending for low deposit home purchases. Although it is a small portion of their total lending, it does enable the banks to lend to borrowers with low deposits.

Bank policies are generally more restrictive in the low deposit space, and the finance is generally more expensive (than for those with a 20% deposit), but many aspiring homeowners are willing to accept those conditions if it leads to them being able to buy a home for themselves.

Considering building? Banks don’t have the same restrictions when it comes to new builds (subject to certain conditions). This essentially means that new builds might be a better option for some low deposit buyers. Buyers will need to know the rules before going too far down that track, and we would be happy to discuss these options.

Every bank has different criteria for low deposit loans, and it can be a time consuming and confusing experience for anyone unfamiliar with the territory. Contacting a specialist Mortgage Adviser who has experience with such matters can be the quickest and simplest way of determining the low deposit options.

There are also some other options that aspiring homeowners are often unaware of, that could increase their total deposit amount to the more widely accepted level (20% of the purchase price).

If you’re a first home buyer you may be able to withdraw funds from your KiwiSaver account to assist with your deposit. You might also be eligible for a HomeStart Grant, which can provide an extra deposit boost. If you’d like to know more about either of these options, click here.

It’s also possible for others, such as parents, to provide deposit support. There are a number of different ways assistance can be provided (such as gifts, loans and guarantees), and it is, in my view, very important to determine the most appropriate option for the parties' circumstances. To find out more about the possible deposit support options, click here.

To those considering buying a property, I would recommend that you get in touch with a recommended Mortgage Adviser well before you are ready to set foot in the market. Even if you don’t think you’ll be able to buy just yet a conversation with a Mortgage Adviser will help you determine how close you are to being able to buy, and the steps that you might need to take to achieve your goal.

If you, or anyone you know is considering purchasing a property, we would love to have a chat and see how we can help.

You might have seen media articles or reports about reductions in property values or a slowdown of the market, particularly in Auckland. But what does this mean – in practical terms – to the average property owner?

For many, the answer is not much (apart from having to accept a reduction in ‘net worth’). Property values are volatile. They can reasonably be expected to rise (as they had been) and fall (or flatten out) over time. Perhaps the most difficult aspects to predict are when and by how much.

If you intend to sell and buy at the same time, in the same market, you may be selling your property, for, say, 10% less than it might have fetched a year ago, and buying a replacement property for, say, 10% less than you might have been able to buy it for a year ago. The net result is not much different (although your property might take longer to sell in the current market, and you might be competing with fewer people for the replacement property).

Bridging finance is an area that purchasers need to be wary of in this market, and banks have certain criteria with regards to bridging finance. The benefits (of bridging finance) versus risks should be carefully considered.

If you intend to exit the market completely (sell but not buy) don’t be surprised if your sale price is less than you might have expected a year ago. If your mortgage finance is close to the property value it would be wise to ensure that you are in a position to sell the property and repay the Bank’s debt – before signing the agreement to sell.

Perhaps the best advice for those concerned about the property market is… Don’t Panic!

If you are looking to sell and buy, or even just sell, we can help you determine potential options, and (if you’re looking to buy) apply for a pre-approval (so that you can be sure you will have access to finance to buy another property before you sell).

While Mortgage Studio does not offer insurance advice, part of our responsibility as a Mortgage Adviser is to recommend that our clients speak with a professional regarding personal risk insurances. Banks don't generally require borrowers to have life insurance, income protection insurance or the like, but a lot of people aren’t aware of the benefit / comfort such insurances can provide.

You may have noticed that when you visit a bank, you are asked about insurances (life, income protection, house, contents, etc.), and bank staff often try to upsell the products offered by the bank. It’s important to be aware that bank insurance products tend to be a general, off the shelf product, rather than a product that is tailored to your specific needs. This is also true of standard policies with other insurers (e.g. AA, Tower, IAG, etc.). While you might think that the person you’re dealing with has your interests at heart, it’s important to remember that they are not independent, and they can’t recommend other companies insurance policies that may be better suited for you.

Unless you work in the insurance industry, insurance policies can be hard to understand, or too long (so people don’t bother reading them). This can cause problems come claim time, particularly if you thought you were covered for something that you’re not.

If you struggle to understand complex policies and words that are unfamiliar, it can be a good idea to find an (independent) Insurance Adviser who can talk you through the whole process. They can help you determine what cover you have, if that cover is sufficient, and make recommended changes to existing policies.

It’s important to regularly review your insurances as circumstances constantly change, and you will want to be sure you are adequately protected. If you haven’t reviewed your insurances for a while, it might be worth contacting your Insurance Adviser to arrange a review. If you do not have an independent Insurance Adviser we can recommend one.

As with insurances, it is also important to regularly review your Will, to ensure that it reflects your true, current wishes. If you get married, divorced, have more children, etc. your Will may need to be updated to include (or remove) certain provisions. Your Solicitor should be able to assist you with reviewing your Will.

KiwiSaver First Home Withdrawal

If you’ve been a member of KiwiSaver for 3 years you may be able to withdraw some of your KiwiSaver savings and apply them toward the purchase of a first home. You may be able to withdraw the current value of:

Your contributionsYour employer’s contributions (voluntary and compulsory)Returns on investment, andAnd member tax credits

…provided you leave a minimum balance of $1000 in your account.

Source: www.kiwisaver.co.nz

KiwiSaver HomeStart Grant

Many people are not aware of this grant, or they get confused between the grant and their KiwiSaver account.

How does the HomeStart grant work?

After three years of regularly contributing to KiwiSaver (of at least the minimum allowable percentage of your total income) you may be entitled to the HomeStart grant.

You can apply for the HomeStart grant or pre-approval if you have belonged and contributed to a KiwiSaver scheme, complying fund or exempt employer scheme for at least three years.

If you are purchasing an existing/older home, the HomeStart grant is $1,000 for each year of contribution to the scheme:

3 years of contributing = $3,000 (the minimum you can get)

4 years of contributing = $4,000

5 years of contributing = $5,000 (the maximum you can get)

If you are purchasing a new home, a property bought off the plans or land to build a new home on, the HomeStart grant is $2,000 for each year of contribution to the scheme. If you are purchasing land to build a new home on, there is a maximum amount the combined land and new home can cost.

3 years of contributing = $6,000 (the minimum you can get)

4 years of contributing = $8,000

5 years of contributing = $10,000 (the maximum you can get)

Please note that there are other eligibility criteria (such as income caps and house price caps per location) to meet in relation to this grant. You can find the list of eligibility criteria at

Source:

At a time when the media seem to have a love affair with property, and regularly report how difficult it is for first home buyers to get onto the ‘property ladder’, I can see how some aspiring first home buyers might despair. What often doesn’t get reported is that there are a number of young people buying their first homes, utilising a combination of personal savings, KiwiSaver First Home Withdrawals, HomeStart Grants and/or parental assistance (we touch on KiwiSaver First Home Withdrawals and HomeStart Grants later in this article).

Some aspiring first home buyers simply don’t realise the potential options available to them now, or perhaps a little down the track. Some seek advice early on, and put a plan in place that will assist them to achieve their goal. Others do nothing, spend everything they earn, and hope for a miracle.

Although banks are still lending to applicants with less than 20% deposit, they are limited as to how much they can lend in that space and tend to be more selective when it comes to assessing such loan applications. Applicants who do not have a better option (than borrowing over 80% of the property’s value) will likely be more than willing to pay the higher costs associated with such lending (which is commonly referred to as “high-LVR lending” – LVR being an acronym for Loan-to-Value Ratio) in order to achieve their goal. However, there are, I believe, a large number of young people with good jobs who do not realise that they might be able to buy their first home with a little help from their parents.

There are also a number of parents who don’t realise that they could help their children into their first home. We have assisted a number of young people into their first home, with support from their parents, and we believe that it is important to get the word out that parents don’t necessarily need to have cash savings to assist their children into a home.

There are various ways in which parents can assist their children into homes. They include the following:

Gift

A gift is probably the easiest form of financial assistance to explain. If the parents have cash available to them they could look at gifting a portion to their child/children. Sometimes this is intended as an inheritance-in-advance, and recorded as such in legal documents (we strongly recommend that parents obtain independent legal advice prior to making a commitment, regardless of the method of assistance offered).

Banks generally require written confirmation (from donors) that the monies are a gift, and not a loan.

Loan

There are a number of reasons why a parent might choose to lend money to their child/children, instead of gifting it. One of the most common reasons that we have encountered for parents offering a loan rather than a gift is to ensure that the monies are repayable (to them) in the event of the property being sold following the recipient separating from his or her partner. We have seen instances of gifted monies becoming relationship property, and being split between the recipient and his or her partner following a relationship breakdown (so loans are often preferred over gifts).

The two most common forms of parental loans are:

A non-interest bearing (ie interest-free) loan, repayable upon eventual sale of the property, with no encumbrances (e.g. Caveat or subsequent Mortgage) to be registered against the title (of the property that is to be purchased) An interest-bearing loan, repayable over a certain period of time (with no encumbrances to be registered against the title)

The difference is in the loan terms. Interest-free loans are more beneficial to the borrower (the home buyer) as the borrowers only need to service the bank finance, and not the parental loan.

Interest-bearing loans need to be serviced, and the borrower would need to be able (in the bank’s eyes) to service the bank finance and the parental loan.

Guarantee:

By definition a guarantee is ‘an undertaking to answer for the payment or performance of another person’s debt or obligation in the event of a default by the person primarily responsible for it’.

If a parent doesn’t have access to cash to assist with a gift or loan to their child/children, but has sufficient equity in their home (or an investment property), and sufficient income, they could offer a personal guarantee and a mortgage over their property as additional security, to help the borrower (ie their child/children) secure finance for a home purchase.

The borrowers are generally responsible for servicing all of the finance. And all going to plan, the portion of the finance that is guaranteed by the parents would be repaid earlier than the other portion of the finance.

The personal guarantee and the mortgage (which is held in addition to the mortgage security over the borrower’s home) provides the bank with the comfort of knowing that in the event that the borrower failed to comply with their obligations to the bank, the guarantor would be able to service the guaranteed portion of the finance from their own income. As such, lenders will require

financial information from both the borrower and the guarantor in situations such as these.

It is not unusual, in our experience, for borrowers to contribute the funds they have available to them in the form of savings, KiwiSaver First Home Withdrawals and/or HomeStart Grants, and for parental guarantees to be limited to the difference between the borrower’s contribution and 20% of purchase price (often around 10% of purchase price). Such an arrangement reduces the loan-to-value ratio (LVR) to 80% (as there is effectively a 20% deposit) and generally enables the borrower to secure better terms with the bank than they would have if the LVR had been in excess of 80%.

Different banks have different approaches to personal guarantees of this nature. Borrowers and guarantors alike need to be aware of their liability during the time that the guarantee is in place. Some banks offer better options for guarantors, than others. Loan structures should be conducive to the needs of both parties and should take their future goals and intentions into account. We consider it a critical part of our role to recommend the most appropriate option to our clients, based on their particular circumstances and goals, following an indepth analysis of the options.

As mentioned earlier, banks are still lending to suitable applicants who have less than 20% deposit, although the criteria are different (depending on the bank) and the cost is generally higher.

We would welcome your call if you are interested in discussing any of the above options in more detail, or if you have any questions to put to us.