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Buying your first home

Technically, a mortgage is a legal document that registers security over property, but it’s more commonly referred to as a home loan. There are many types of mortgages (or home loans), each with its own interest rate, fees and range of flexibility. There are also different repayment structures to choose from.

Each of these things affects the total cost of the loan and how long it will take to pay it off. If all of that feels a bit overwhelming, you can chat to one of our team members who can help make sense of it all. Alternatively, you might find some answers to your questions below.

One way to find out how much you can borrow is to have a chat with a lender, or a mortgage broker.

If you’d like to get a quick idea of what you could borrow before going to the trouble of organising meetings, you can apply online with us. You’ll have your answer in about five minutes and there’s no obligation to follow through with the loan upon approval. Best of all, our process won’t affect your credit rating.

Good question—smart question! Whenever you take on a loan, it’s important that you don’t get in over your head. Our expenses calculator can help you figure out what money you have left, after your current expenses, to make mortgage repayments. This will help you figure out the size of the mortgage you can afford. Give it a try.

Your mortgage repayments will depend on the size of your mortgage and the terms of your loan. Try our online home loan calculator to get an idea of what your repayments might look like

Essentially, a broker helps you to navigate the whole mortgage process. Here are a few benefits of using one:

  • Brokers deal with a number of lenders, so they can save you time shopping around.
  • They know the interest rates and application criteria for different lenders and can negotiate on your behalf.
  • They can help you put a loan application together.
  • They may be able to find an alternative lender if a bank declines your application. They may also be able to get you a better deal than if you were to approach the lender directly.
  • All mortgage brokers are now required to be Registered Financial Advisers. That means they must have a complaints process in place and belong to a dispute resolution scheme. It’s a good idea to check the official Financial Services Providers Register before choosing a broker.

An interest rate can be fixed, floating or a mix of both. There are pros and cons to each option, which we’ll look at now.

Fixed interest rate: This means the interest rate is locked for a period of time, agreed to by you and your lender—it can be anywhere from six months to five years. When you reach the end of the term, you can decide whether you want to fix an interest rate again or switch to a floating rate.

  • Pros:
    • No surprises—you always know how much all your repayments will be
    • Lenders may compete to offer you a lower fixed rate
    • You can secure a lower rate when interest rates are on the rise

  • Cons:
    • More restrictions—you’ll most likely be charged fees if you want to make bigger repayments of more of them
    • If you agree to a longer term, you risk paying more if interest rates drop
    • You may be charged a ‘break fee’ if you sell the property or alter the loan

Floating interest rate: Also known as a variable interest rate, this will fluctuate depending on what the market interest rates are doing, so the cost of your repayments will change over the course of your loan term.

  • Pros:
    • More flexibility—often you can make extra or larger repayments or change the terms of your loan without being charged fees
    • Debt consolidation is easier with floating interest rates since there aren’t break fees

  • Cons:
    • Less control—when market interest rates go up, so do yours, so at times you’ll pay more
    • Floating rates are usually higher than fixed interest rates

Mixed: You can choose to split your loan so that some of it has a fixed interest rate and some of it has a floating rate. How you split it is up to you.

  • Pros:
    • Best of both worlds—flexibility and security
    • The portion of your loan that is fixed retains the (usually lower) interest rate
    • The portion of your loan that is floating allows you to make extra repayments without incurring fees, which means you can pay it off faster

Without a crystal ball, it’s hard to say for sure how long you should fix your mortgage interest rate for. This analysis compared floating with fixed rates from December 2004 to November 2020. They found that one and two year fixed rates worked out cheaper than floating rates or long-term fixed rates.

Splitting your mortgage so that a portion of it has a fixed rate, and a portion has a floating rate is a good way to find get a balance of security and flexibility.

Our online home loan calculator can help with that! Give it a try.

Having a floating interest rate for all of or a portion of your home loan offers you the flexibility to make extra or bigger repayments without incurring additional fees. A revolving mortgage also offers flexibility, which could allow you to pay it off quicker. For more tips on how to pay off your mortgage faster, check out this guide.

A revolving mortgage is a bit like a big overdraft—as money comes in and out of your account, the balance fluctuates. The interest is calculated daily, so the bigger your balance, the smaller your interest rate.

Revolving mortgages don’t have fixed payments, so you can make payments more often, or make bigger payments without incurring fees. If you’re smart about it, this type of mortgage can allow you to pay it off faster.

Revolving credit mortgages can be good for people who have inconsistent incomes—sole traders, for example. When they get a boost in income, they can make a big payment. If you want to explore this route, you need to set a budget and stick to it.

Getting your first home loan can feel a bit daunting. There are quite a few steps you’ll need to go through, but the process is actually quite straightforward. Here’s the gist of it:

  1. You meet with a mortgage adviser—they’ll talk to you about your financial situation and your goals, then decide on what’s achievable and work with you to create a plan of attack.
  2. You apply for a loan—your adviser will help you pull together all the necessary documentation such as proof of identity, bank statements, tax returns, etc.
  3. Your chosen lender will then assess your application.
  4. If you meet their criteria, you’ll be given conditional approval (also known as pre-approval). This means that you can bid on a house or make an offer with conditions outlined by your lender.
  5. When you’ve found a house you want to buy, your lender will do a security assessment. To do this, they may need a property valuation, which you will need to pay for.
  6. Some people need lenders' mortgage insurance—if you do, your lender will apply on your behalf.
  7. After you make an offer on a house, your lender will issue a formal ‘Letter of Offer’. If this is accepted by the seller, your loan becomes unconditional, which means all systems are go! You’re legally obliged to follow through with the sale at this point.
  8. Your solicitor and lender then get together to iron out all the final details and schedule a settlement date. Your first loan repayment usually comes one month after settlement.
  9. Before you move in, it’s best to get insurance sorted. Life insurance, income protection and home and contents insurance are all worth looking into. You may need insurance ahead of settlement—if so, your adviser will let you know.

Aside from your deposit, you need to be able to prove that you can comfortably afford mortgage repayments and that your income and/or employment is secure. Some things you may be asked to provide are:

  • Proof of identity
  • Marriage certificate
  • Most recent payslips
  • Your employment contract
  • Recent tax statements
  • Your full tax returns from the last two years (if you’re self-employed)
  • WINZ statements
  • Bank statements
  • Shares certificates
  • Statutory declaration (if all or part of your deposit is a gift)
  • Recent statements for your other loans
  • Documentation of any agreed construction you plan on doing to the house
  • Cheque for establishment fees

Not necessarily, but it does make things easier. Getting pre-approved means that you can bid at an auction or put an offer on a house, up to a limit that you and your lender have agreed to.

Alternatively, when you find a house that you’d like to purchase, you can ask the real estate agent to insert a ‘finance clause’—this gives you time to get approved to buy the property. 15 working days should give you plenty of time to get approval from a bank. If your application is unsuccessful, you should still have enough time to talk to a non-bank lender and get the finance that way.

Generally, you need 20% of the total property price, but some non-bank lenders only require 10%. First home buyers may be able to get finance with a 5% deposit. In this case, the finance structure would use a combination of home loan and caveat. Usually, the caveat is that the lender can claim interest on the property, which provides them with enough security to lend you the rest of the money for your deposit.

First home buyers have more options available to help them get into the housing market. These include:

  • As a first home buyer, what additional help is available to me?

    First home grants
    First home buyers may be eligible for a government grant of up to $10,000. There are a number of conditions around your income, your Kiwisaver contributions and the type of property you can purchase. To see if you’re eligible, check out the Kāinga Ora website.

  • Kiwisaver
    If you’ve been contributing to your Kiwisaver for at least three years (it doesn’t have to be consecutive), you may be eligible to withdraw all or part of your funds to help pay for your first home deposit. There are a few rules around eligibility and the type of property you can purchase. For more information, visit the Kāinga Ora website.

  • Bank of Mum and Dad
    While this option may not be available to everyone, more and more people are getting help from their parents to purchase their first home. Three ways that your parents (or other family members) may be able to help include:
      1. Gifting money: This is pretty much exactly as it sounds—they give you money that goes towards your deposit. This is done with the understanding that you don’t have to pay it back. Your lender may require a statutory declaration to prove this.
      2. Guaranteeing your mortgage: If you’re unable to come up with a 20% deposit on your own, your lender may accept a lower deposit if someone in a more stable financial position acts as a guarantor. Essentially this means that if you don’t meet your repayments, they will make them on your behalf. This is risky for the guarantor as they become liable for the entire mortgage if you’re unable to service it.
      3. Borrowing against their own home: To help you get enough money together for your deposit, your parent/s may be able to increase their own mortgage or take on a second one. You can either make these repayments, or your parents can. This is still risky for them, but not as risky as guaranteeing your mortgage. If things go pear-shaped, they’re only liable for the money they’ve borrowed, not the mortgage of your whole house.

Buying another home

This depends on the lender. Most will lend up to 90% of the value of the property including the new advance, however, some may lend up to 100%.

If your property is worth $1million and your current mortgage is $800,000 then some lenders may be able to lend up to $200,000 as a second mortgage.

Reviewing your existing home

If you’re on a floating interest rate then you can refinance easily, without incurring break fees. If you’re on a fixed rate refinancing is possible, but your lender may charge break fees to end the fixed term. The good news is that many banks offer cash incentives to help pay these fees when refinancing.

A reverse mortgage is when you take out a loan using your home as security. Just like any other loan, it incurs monthly interest. The difference is that instead of making regular repayments, the loan (and interest) is paid back when you sell your home, using the proceeds from the sale.

This kind of loan is usually taken on by retirees who want to have their money freed up so they can use it while they’re living, rather than having it tied up in an asset. It’s a big decision and comes with risks, so most lenders will require a person to seek legal advice before taking on this type of loan.

Watch this space

Home Loans are coming soon to Lending People. Keep an eye out as we will be updating this page very shortly!

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¹Fees: We do not charge a fee to use our service (commonly referred to as a platform fee, broker fee, or referral fee) if you do not enter into a personal loan arranged by us. A fee to use our services is applicable in all other cases. See our Terms & Conditions for the applicable fees.

²Annual Interest Rate (AIR): The AIR offered by our Personal Loan providers ranges from 8.95% p.a. to a maximum of 28.95% p.a.

³Annual Percentage Rate (APR): Also known as the 'comparison rate', the APR is calculated by adding together the AIR plus any additional fees that may apply (like establishment fees charged by providers). New Zealand law does not require APR disclosure, but doing so can better highlight borrowing costs. The APR offered by our Personal Loan providers ranges from 9.80% p.a. to a maximum of 29.91% p.a. The APR is accurate only for the representative example given below and may not include all fees like early repayment fees (if any). Different terms, fees or other loan amounts might result in a different APR.

⁴Minimum and Maximum Repayment Terms: Repayment terms offered by our Personal Loan providers range from 12 months to a maximum of 84 months.

Representative Example of the Total Cost of a Loan: If you borrow $20,000 over a repayment term of 36 months at an AIR of 8.95% p.a., your total repayments will be $22,493 (made up of $20,000 principal, interest charges of $2,243, and an establishment fee of $250). This example assumes monthly repayments and does not include premiums for any optional insurances, fees for using our services (if any) or default fees.

⁵Terms and Conditions: Our services are provided in accordance with our Application Terms & Conditions. All approvals are subject to provider credit criteria and responsible lending requirements. The loan amount and interest rate offered will depend on your circumstances, the type of lending required, and the security (if any) provided will reflect the loan amount and interest rate offered by the provider. Provider establishment fees, terms, and conditions apply.