Mortgages – First Time Buyers | Investment Property
And we don’t stop there. We are also able to provide advice when you are looking to buy your second home or rental property to start building up long-term wealth through a property portfolio.
5 Easy Steps to Apply for your Home Loan
1. Speak with a Leapway adviserWe will have a quick chat about your gaols and dreams and how we are able to assist you with making these dreams and goals a reality.
2. Online Loan applicationOnce you are ready to apply for a home loan, you can complete your home loan in the comfort of your home and all within your secure client portal that saves all info as you go. Even better you can upload all documents needed directly form your computer into your client portal. Our full home loan application only needs about 10-15 minutes to complete.
3. Pre-approval/Conditional ApprovalOnce we have gone over your application with you, we will then submit your application for pre-approval or conditional approval. At this stage, you will know how much you can spend on your home and have an idea of what your repayments will be.
4. InsuranceYou’ll need to insure your new home, and you can also cover your mortgage loan and monthly repayments if you’re unable to work. We’ll help put a plan in place that suits your needs and budget.
5. Unconditional approvalUnconditional finance!! Once your home loan is formally approved and we have met all the conditions requested on your conditional approval, your loan documents will be sent to your solicitor. At this stage we also provide advice on which structure best suits your need and from day one we will start working with you to plan to pay off your mortgage as soon as possible.
Taking advantage of different types of mortgagesSo how much more should you commit to paying down your mortgage? Ideally all of your surplus income should go toward your mortgage. However, the downside of increasing your repayments on fixed mortgages is once you commit to a higher repayment you can’t decrease it without penalty or until your fixed term is up.
Table loansBy default, banks in New Zealand will encourage you to use this type of loan. Every time you make a payment towards your mortgage, a portion will go towards paying the interest on the loan (the cost of borrowing) and a portion will go towards repaying the principal of the loan (the money you’ve borrowed to buy your property).
Advantage: The consistent repayments on a table loan allow better certainty over your repayments which will make budgeting much easier.
Useful when: You want to pay down your mortgage and build certainty over a fixed term, i.e. 1-5 years.
Interest-only loansIn New Zealand, banks will allow you to take a table loan with an interest-only term. An interest-only term reduces your overall repayment commitment for a period of time. You are only contributing toward the interest repayments, not reducing the principal portion of the mortgage.
Advantage: Your repayment amount will be minimised as you are making the minimum possible repayments, only covering your cost of borrowing.
Useful when: You want to make the minimum repayment towards your mortgage, or if you are looking to maximise your interest expense over an investment property.
Revolving Credit/Flexible LoansA revolving credit loan is like a credit card with larger limit, but at a much lower interest rate. Like a credit card, you need to decide on the overall limit or facility size. Let’s say you set up a $50,000 revolving credit facility. On day one, you have access to borrow up to $50,000 against this facility. The next thing you need to decide is the balance, or how much of that money you plan to have used on day one. You could use your facility to repay some of your other debts (car loans, credit cards, or existing mortgages). Alternatively, you could start the revolving credit with a negative balance and try and pay it back to a zero balance during the year. If you did this, you would effectively be speeding up your overall mortgage repayments without the downside of having to change your fixed repayments on your other mortgages.
Advantage: More flexibility to repay large sums and the flexibility to take your money out when it is needed in the case of an emergency.
Useful when: You are disciplined with your money. Your income is irregular. You want to make large repayments without paying any penalty.
Notes: Usually there’s a $12.50 monthly fee for this account type.
Using Revolving Credit Instead of a Savings Account:To minimize interest paid, you should have a portion of your mortgage as a revolving credit account equal to the expected amount of savings you can put away over a one year period. You would also want to direct your income into this account. The advantage of directing your income into this account is lowering the interest calculated on your mortgage. As soon as you use money from this account, interest is calculated on the outstanding portion. To maximize your savings, you can take advantage of the 55 day interest free period on your credit card to bridge the gap.
Fix, float, or both?
Floating RatesLenders of floating-rate loans will lift or lower the interest rate as interest rates in the wider market change. This means your repayments may go up or down.
- You can usually lift your repayments or make lump sum repayments without penalty.
- You can use some floating rate based loans as a mortgage overdraft as detailed above to enable you to save tens of thousands in interest and many years off your loan term.
- Floating rates have often been higher than fixed rates.
- When rates go up the repayments also go up, putting a squeeze on your budget.
- You know exactly how much each repayment will be over the fixed term and therefore it provides security.
- You can lock in your rates if you think market rates are rising.
- Fixed rates often have limits on how much extra you can make lump sum payments without incurring charges. If you decide to break mid fixed term you may be penalised.
- If you fix over a longer term, there is a risk floating rates may drop below your fixed rate.
Buying property with a '0%' depositMany people want to know how to buy another property without selling their existing property. The right way to do this is by using two different banks or sets of borrowers to avoid cross securitisation.
Many people have an existing property with equity from capital gains.
Apply for a revolving credit top up to be used for the deposit. Withdraw this as a gift to help kids into first home, or as a deposit to be taken to another bank to secure further lending for the second home or investment property.
Children, or investors, approach second bank to borrow required lending for the second purchase.
Now two houses are owned and each loan is with a different bank, which provides more assurance as you have each property being used as security at a different bank.
If property prices rise over time, children may be able to top up in the future to gift their parents back the deposit they were initially gifted.
Spread risk with 'Interest Rate Averaging'If you wanted the cheapest possible interest rate today, it’s likely you would fix your whole mortgage for one year as this rate is usually the banks cheapest headline rate. However, this isn’t necessarily a good idea. If rates next year were significantly higher, you would have to refix your home loan at a much higher rate and face a massive increase to your costs, which may make budgeting very difficult. Similarly, if you wanted the ultimate in long-term security you might choose to put your whole loan on a 5 year rate. This is great, as long as interest rates don’t fall. If they do, you’ll be stuck on a high interest rate when everyone else is on a significantly lower interest rate.
Nobody can see into the future. This concept of interest rate averaging is a great way to hedge your bets. Split your loan into three portions, and fix them for different terms (1 year, 2 years, and 3 years or 1 year, 3 years, and 5 years). Over time, you’ll get an averaged interest rate and have the opportunity to review a significant portion of your mortgage every year or two.
This approach will mean that you won’t win big (by taking an immediate short term rate) but you also won’t lose big (by being hit with a major increase on your whole loan). Should interest rates continue to rise only 1/3 of your loan is coming up for renewal at any given year. At the end of this term you can then choose to re-fix for another term of your choice or you could even choose to keep the loan on a floating rate. At the end of the fixed term the choice is yours and your decision will largely be made based on interest rates and your financial situation at the time.