Most home loans come with their share of fees. Don’t fret over the length of this list, as you probably won’t be subject to all of them. You may even be able to convince your lender to nix a few.

It’s also not an exhaustive list as every lender has its own fee schedule.

Without further delay… your list of the most common home loan fees you might see:

Upfront fees

These are one-off upfront fees you may encounter at the beginning of the home loan process. They may include fees to your lender and to interested third-parties like the government and your solicitor.

Upfront lender fees

• Application fee. Also be called an establishment fee and it pays for the lender to organize your loan whether you settle or not. Some lenders will waive this fee.
• Valuation fee. Pays for a qualified independent valuer to assess your home’s value. Some application fees may cover this up to a certain amount, with you paying any difference.

Upfront government fees

• Stamp duty. A percentage of the total cost of your property, which goes to your state’s revenue department (percent varies by state). It’s more of a tax than a fee.
• Mortgage registration fee. Pays the state to register the purchased property as the security on the home loan.

Other upfront fees

• Conveyancing fees. Fees paid to your solicitor or conveyancer (if you choose to use one) to help you prepare and organise your contract.

Ongoing fees

These are regular, ongoing fees you may have to pay your lender throughout the life of your loan.

• Monthly service fees. A regular monthly account-keeping fee.
• Annual fees. A yearly fee that usually only applies to package home loans, which are home loans bundled with other financial products.

Exit fees

These are one-off fees you may have to pay when you pay off or close out your loan.

• Discharge fee. Also called a settlement fee, this applies when you close out your loan (ie, pay it off, sell your property or refinance).
• Early-repayment fee. A fee for paying your loan off early. It usually only applies to fixed rate loans but not variable rate loans.

Special fees

These are fees you might have to pay if you’re taking out a special type of loan, like a fixed-rate loan or low-deposit loan.

• Rate lock fee. A special fee to lock in your rate with a fixed-rate loan.
• Security guarantee fee. A special fee that applies when you have a guarantor on your loan.
• Lenders Mortgage Insurance (LMI). An insurance premium that applies when you take out a low-deposit loan (usually under 20% deposit).
• Redraw fees. Apply when you withdraw funds from a loan account that you’ve made extra repayments into.

Bottom line

Fees are a fact of life, especially for a financial product you’ll carry with you for a long time. It’s important to become familiar with this list before you start researching home loans. That way you won’t be caught off guard when you do come across these fees in your search and you’ll know what you’re talking about when it’s time to negotiate your loan terms.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

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Online home loan calculators can be among the most valuable tools you’ll find as you seek to maximise your borrowing capacity, nab the best deal and work out the most cost effective way to pay the darn thing off. 

What is a home loan calculator?

“Home loan calculator” is actually a catch-all term that applies to an entire category of calculators that each has its own function. 

For example, one type of calculator will estimate how much you can borrow, while another will let you experiment with different payment strategies. There are even calculators that will help you estimate your stamp duty based on where you plan to buy your home. 

Some require more input from you than others, so you’ll need to know what to expect from each one before jumping in.

With that in mind, here are the most popular types of home loan calculators you’ll find on the net. Keep in mind that they all provide estimates only. 

Home loan eligibility calculator

A home loan eligibility calculator helps you calculate the size of loan you may be eligible for. You’ll have to input some of your personal financial details such as:

• Your income
• Your annual expenses
• How many dependents you have 
• Any other loan repayments you are making
• The amount of interest you expect to pay
• The term (or length) of your loan

If you’ve entered everything correctly, the calculator will estimate how much you’ll be eligible for but you’ll still need to go through the application process to get the true amount. 

These can also be called borrowing calculators or borrowing power calculators. 

Loan repayment calculator

You can think of a loan repayment calculator as a mortgage calculator, since this type of calculator helps you understand the details of your mortgage once you know how much you plan to borrow. 

It will estimate how much you’ll pay on an ongoing basis, how you  will pay down your interest and principal over time and how much in total you’ll spend by the time it’s all said and done.

A loan repayment calculator doesn’t require as much input as the borrowing calculator does. 

You’ll just need to provide the following:

• How much you’ll be borrowing
• The term (or length) of your loan
• Your interest rate and whether it’s variable, fixed or introductory
• Whether you plan to repay the loan monthly, fortnightly or weekly

Home loan offset calculator

An offset account is a transaction account linked to your home loan. The more money you stash away into this account, the less you pay in interest on your home loan. 

An offset calculator lets you see how your repayment plan will benefit from a well-funded offset account.  

Other calculators

You may come across other home loan calculators, but most are just fancier versions of the loan repayment calculator:

• Extra repayments calculator. This lets you see what happens to your repayment plan if you decide to voluntarily increase your payment amount at a particular point in the future. 

• Lump sum calculator. This shows you what will happen to your repayment plan if you decide to make a large lump sum payment at some point in the future. 

• Home loan split calculator. This shows you how your repayments would look if part of your loan was set to a fixed rate and part of it to a variable rate. 

• Home loan comparison calculator.This lets you compare the repayment plan for two loans side-by-side, based on the differences in interest rates, loan term and fees. 

Who offers home loan calculators?

Nearly every home loan lender will offer a suite of home loan calculators to help you understand what you can expect when it comes time to actually apply for a loan.

Here are some Kiwi lenders who offer one or more of the home loan calculators mentioned above:

• ANZ
• ASB
• BNZ
• Westpac
• Kiwibank
• TSB
• BPI Family Housing Loan
• Kiwisaver
• Sovereign (recently acquired by AIA Group)

Each lender has different criteria it uses to work out your loan details, so each calculator might have small differences that take their particular criteria into account. 

For example, each lender will have a different fee structure, which may include an application fee and ongoing account fees (you can avoid some of these fees by taking advantage of special offers). 

That said, the calculators are only meant to provide estimates and are not considered loan offers.

The point is to educate yourself and to determine if you’re ready to take the next steps – which in most cases will be to start the application process or speak to a home loan advisor. 

What else do you need to know about getting a home loan?

Using a home loan calculator is a good way to educate yourself about how home loans and repayments work, but they aren’t the only tools you’ll need to get a full picture of your borrowing power. 

For example, they don’t take your credit score or credit history into account, and these pieces of information play a huge role in a lender’s decision to actually approve the loan.

With a free Credit Simple account, you can access your credit score and your credit history any time you want. Having this level of insight will help you work out ways to improve your score or to identify any dodgy activity like identity theft. 

We also have a learning library where you can learn to prepare for and optimise your home loan.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

The post Everything you need to know about online home loan calculators appeared first on Credit Simple NZ.

Oh Tony.

Tony, Tony, Tony.

For those who don’t know, Tony Alexander is the chief economist at BNZ and he said a few things about Spendy Young Things (SYTs) not saving properly for a house.

Tony would like you all to have a house, you see, but you do rather spend a lot on things he says you don’t need. Like landscape gardening (!), lattes and smashed avocado on toast at your favourite Sunday brunch spot.

Of course, the real reason you don’t have a house has nothing to do with the price of avocados and more to do with the price of houses and Tony’s comments have been debunked by those who point out that buying a house 30 years ago took considerably less of your weekly take-home pay than buying today and perhaps if Tony were to look at things that way he’d see why SYTs have basically given up saving for a deposit. Pass the kale salad, if you please.

But.

But…

Putting aside for a moment the need to save for a house and let’s just think about saving for the future. Any future. You might decide to buy a house in 20 years’ time or you might decide to go on holiday in five years, either way you need to save and so underneath it all, Tony might have a point about saving.

Saving is hard work and it means going without your favourite things and wearing sack cloth and darning your own socks. So chop chop, let’s get to it.

Actually, that might not be the case. There might be another way to save that means you can eat your cake avocado and have it too.

Saving is always painted as such a chore but really it doesn’t have to be. The problem tends to be the goals we’re aiming for are so huge that when you’re looking at that donut or bottle of pinot or pair of shoes on sale your perspective gets all screwed up. There’s no way not buying this coffee is going to make a blind bit of difference to the end goal so I might as well just buy it and be done with it.

For once, you really don’t want a sense of perspective.

Instead of aiming for your goal every time you spend any money, let’s not think about the goal at all. It’s too far away and too scary. Instead, let’s look at how you spend your money and whether you can make any savings on that side of the equation.

I like coffee. I used to drink gallons of it but found I couldn’t sleep at night and wasn’t terribly much fun during the day time and I had to go to the loo an awful lot and so I decided to have only one cup of coffee a day, at about ten in the morning.

I struggled with it, I fought against it, I used to slip up and sneak in an extra but somewhere along the way something interesting happened.

I began to really enjoy drinking coffee.

Oh my goodness, I can’t tell you how good it was. I’d savour it. I’d smell it, I’d consider it up close. I’d sip it. I’d admire it.

It’s become a ritual for me and one I’d hate to lose. Coffee stopped being a fuel and became something I enjoyed again, quite by accident.

This wasn’t a cost-saving measure, this was a caffeine-reduction measure and one I was reluctant to take part in, but it worked and I felt better as a result.

Saving works the same way. Work out what your absolute costs are each month (rent, power, water, internet access, insurance, whatever). That’s your ground zero – without these things you can’t survive.

On top of that add your things you absolutely would not want to live without. That one coffee a day for me was non-negotiable. My wife couldn’t care less about coffee but for her it’s our Netflix subscription. The kids don’t care for Netflix but can’t possibly live without Spotify.

These are your non-negotiables and they’ll differ from person to person, and even from year to year. For you it might be that avocado on toast special at the café or it might be a subscription to Sky TV or the gym membership or yes, Tony, it might be the landscape gardener. But you have to have a life and you have to have some fun so you might as well build it in.

Beyond that are your fritters. No, not corn fritters with bacon and some really nice sour cream  (you SYTs are obsessed with food, clearly), I’m talking about the things you fritter away without realizing it.

Like your phone bill.

I pay about $100 a month for my mobile because it’s a business phone and that’s what they cost. Well they used to – I haven’t actually looked for more than a year because who looks at these things. Now that I’m talking about it I can see that a mobile with unlimited calls and txts and 6GB of data can be had for $50 a month.

Holy cow, that’s good!

And if I can make unlimited calls, do I need to have a landline with a toll calling deal as well? Actually, no I don’t. So let’s get rid of that entirely.

Now I’m saving closer to $100 a month. That’s $1200 a year and I haven’t had to change anything about my day-to-day life.

What about my power bill? What about my insurance? What about my car? What about that credit card – I discovered I was paying for a platinum card which was giving me rewards that I never used. What a waste! Now I don’t pay for a fancy card but oddly that doesn’t stop me from using it. Who knew!

A friend of mine has a bumper sticker about driving to the gym which costs money so you can burn fat versus cycling, which uses fat and saves you spending on the gym. He’s taken it to the full extent and done away with having a car altogether. When he goes long distance he hires a brand new car for the weekend and saves himself a fortune over the year.

Taking a hard look at these kinds of bills that just nibble away at your money is essential because you work hard for your money and you should enjoy it when you spend it.

And that’s true whether you’re saving for a house or not.

The post Are you a Spendy Young Thing? Housing market aside, here’s why (and how) you should be saving appeared first on Credit Simple NZ.

It’s amazing, really, how many hoops you have to jump through these days just to earn yourself the privilege of borrowing hundreds of thousands dollars in a home loan. But how many hoops are we talking, exactly? How difficult is it in the current market to get yourself a mortgage?

A bit tricky, says Maria Slade, author of Buyer Beware, A New Zealand Home Buyer’s Guide. For starters, you don’t really get past GO without a 20 per cent deposit thanks to the Reserve Bank’s LVR restrictions – although, she says, there are ways around that. “It’s not impossible to to get a loan if you don’t have 20 per cent, it’s just harder and you will pay more for it.”

Some banks will lend up to 85 per cent. “Kiwibank in particular, their focus is on first home buyers, so all things being equal they may lend up to 85 per cent.”

Are you financially ready for a home loan?

But you’ve really got to make yourself mortgage-ready. “You’ve got to have a good financial track record. If you’re popping down to the casino of a Friday and popping out a couple of hundred dollars three times in the evening, the banks will notice that, they will. Believe me, they will go through your accounts and so you need to demonstrate good accounts behaviour.”

The better idea is to get out a couple of hundred at the beginning of the week and buy all your coffees and lunches with that, than it is to be constantly using the eftpos. Also if you’re gearing up to be paying a mortgage, you should work out roughly what your mortgage might be and what it might cost you and put that money aside, so you can demonstrate to the bank that you’re capable of paying it.

“These are all things that the banks are going to want to see because they they’ve got more conservative in the current market environment, and it’s not just to do with the LVR restrictions – the banks are protecting their own position. As we all know, the markets got pretty overcooked and the banks are very aware of that. So you do need to be a good little mortgage payer.”

Don’t overlook other options, though, she says. “Other non bank lenders are an option. You wouldn’t want to do it forever, but if you’re struggling to get that loan, you could go to them for say two to three years. You’ll pay a higher interest rate, but it gets you in and you’re in the property, you’ve got the track record of paying down the mortgage, then you can go to the bank and say ‘look this is where I am, can I get a loan from you?’ and you can get a loan at a better rate, obviously, if you go to a mainstream bank.”

Since the finance company collapses of the last decade, the non-bank lenders have been tainted a bit, “but really they’re reputable and there is a viable option for a lot of people. They say it themselves: ‘you just wouldn’t want to be with us forever. But because we price the risk, we’ll charge you the higher interest rate.’ But that’s another way in.”

Getting some help with your first mortgage

And of course here are the government assistance schemes: “There’s the KiwiSaver Homestart and the Welcome Home loan. They come with all sorts of income and price cap restrictions, and so they’re not easy to get if you’re in the middle of Auckland, because properties are just more expensive than the cap. But in a lot of the regional centres they’re a really viable option.”

Has there been much take-up of these offers? “Yes. The figures show there’s more take up in the smaller centres than there is in Auckland or Wellington, simply because it’s harder get in under the cap.

“But if you’re thinking of buying a house, you want to investigate that and you want to plan ahead for it, really, because you’ve got to have been in KiwiSaver for three years minimum paying consistently over that period, all that sort of stuff. So you want to think ahead and make sure you’re fitting in to the criteria, because it’s a really good option. All these things are options.”

Maria Slade’s new book Buyer Beware,  A New Zealand Home Buyer’s Guide, talks about the challenges facing home buyers. Published by Penguin Random House, $30.00 in bookstores or online here.

The post Buddy, can you spare a million? How easy is it really to get a mortgage in New Zealand? appeared first on Credit Simple NZ.

Is an apartment your way to get a foot on the property ladder? We’ve been talking to author Maria Slade about her new book on the New Zealand property market, Buyer Beware, A New Zealand Home Buyer’s Guide.

It was an interview with John Key about the housing crisis that got Maria Slade started on a book about our boiling property market. Our then-PM was saying young people should move into apartments if they couldn’t afford a standalone home as our parents used to. They should do what they’re doing in Sydney and Melbourne. She wondered: is he right? Are apartments the way to go?

That was six months ago. Now there’s a book in the shops. What’s her verdict? Is an apartment the answer if you’re locked out of the market? To a degree he’s right, she says. “But what he failed to mention is that the apartment market in this country is fraught with risk.”

If you’re seriously considering it, you should do some very thorough research, she says and get very good advice, “because the regulatory regime that surrounds the apartment market in this country is woeful.”

Oh really? Tell us more

Well for starters there’s the Unit Titles act, which various members of the legal fraternity have described as a dog. It has big gaps in it, it can be vague, and it lacks teeth where it needs them.

For example, the act says apartment blocks should have long-term maintenance plans that will set out, say, replacing the cladding at 10 years and the roof at 20 and so forth. They’re also supposed to have an associated fund that the owners contribute to every year, so that it builds up that money for when the jobs need doing.

“Guess what? The act allows bodies corporate to opt out of having a fund, and the requirements for the plan are so loose that basically your 65-year-old body corporate secretary could write it.”

So you end up with inadequate plans and insufficient funds to back them up. “That’s a big liability for future owners coming in further down the track, because they can be buying into a building that’s going to need work and there’s no money there to pay for it.”

And of course, there’s the leaky building problem. “There’s an estimate that something like 40 per cent of the buildings in central Auckland are leaky or need some other kind of remediation, so you’ve got to be very careful about what you’re buying into.”

Older people who like the whole lock-and-leave idea moving to apartments and all those maintenance worries solved should also be careful. “I’ve spoken to a lot of people who say real estate agents should be almost banned from selling properties with that pitch because it’s just not true. There are ongoing costs – body corporate costs for a start – but secondly there are these ongoing maintenance costs and developers won’t tell you about that.”

They won’t tell you that there may be a long-term maintenance fund you’ll have to contribute to “and so if you’re an older person who’s retiring using all your life savings to buy a little apartment or something and you’ve got no cash flow other than the pension, this is not the property for you, because it does come with all sorts of other responsibilities. If you’ve got the money and you want that sort of lifestyle, well fine, go for gold, but you have to be aware that that’s what it comes with.”

Apartment living: not the Kiwi way?

You also need to be aware that apartments can be full of foreign students and short-term accommodation and you may find it something you can’t readily adjust to. “Apartment living is kind of a new thing for New Zealand, and it’s not a my-home-is-my-castle situation. You do have to live in a community and you do have to form relationships with your neighbours and the body corporate, and if you’re not prepared to do that, apartment living is possibly not for you.”

Are they good value for money? And where does she think prices may be going? “The apartment market’s been quite volatile, I guess, because the banks still won’t lend more than 80 per cent on an apartment and they won’t lend more than 50 per cent on a lot of the really small apartments. So the banks are a bit leery of them, still, and that’s for lots of reasons – because of the quality some of them and because of the numbers being built.”

There are different ends of the market. “You’ve got cashed-up baby boomers who are selling up their properties in the suburbs and moving to the city. Some of the more top-end ones are pretty expensive, some of them are pretty flash so those ones are not really an option for your struggling home buyer trying to get in the market.”

It’ll probably take a while for the market to settle down, she suggests. “But ultimately it’ll settle down because it’s sort of the way we’ve got to go. Cities are going to intensify whether we like it or not and apartment living is going to be a much more viable thing for Kiwis. As the PM rightly said – it’s certainly the case in the big Australian cities, so why wouldn’t it be here?”

Maria Slade’s new book Buyer Beware, A New Zealand Home Buyer’s Guide, talks about the challenges facing home buyers. Published by Penguin Random House, $30 in bookstores or online here.

The post My apartment, my castle. Is an apartment a smart way to get your foot on the property ladder? appeared first on Credit Simple NZ.

What with Auckland houses selling for more than 10 times the average income and interest rates about to rise and who knows – maybe a crash ahead? – we thought we should ask: Is this this a good time to be getting into the property market? Do you grab the moment while you can? Do you wait for things to settle down? What’s the magic moment to act?

Actually, there is no right time, says Maria Slade, who’s just written Buyer Beware,  A New Zealand Home Buyer’s Guide.

The right time to buy a house, she says, is when you’re ready to buy one.

She says people can get a bit hysterical about the idea that they’ll buy a house and then the market will crash. “Well, I personally think that’s unlikely, given the factors that we’ve got going on. We’ve got high immigration a shortage of houses and high domestic immigration as well – lots of people coming to Auckland and so forth.

“Historically what happens is the prices drop back a bit and then they bubble long for a while and then they come back up again. They never drop back to where they were.”

So if prices drop but you can keep paying the mortgage, you’re okay? Yes, just as long as you don’t have to sell your property, she says.  

That can be the tricky bit. If you get into a situation where there’s been a relationship break-up or if you have to move for a job or something like that, you’ll have to take the loss. “If you get caught by that, then okay that’s an issue if prices have fallen back. But if you can sit tight, you’re fine.

“And the other thing to think about is: this is the reason the Reserve Bank has introduced the LVR restrictions [where banks now generally require at least 20 per cent deposit]. If you’ve got a decent chunk of equity in your home if prices fall then you’re still okay, you’re not going to get into a position of negative equity. And that is one of the whole reasons they’ve introduced this regime.

“You’ve got to consider your own life situation and what you want. If you want the security of owning a roof over your head, then take every step you can to make it happen, and I don’t think there is a right or wrong time to buy.

“As long as you research the market and take good advice from your lawyer and your broker and people like that, you’re not going to pay too much for house. A house is worth whatever people are prepared to pay for it.”

Maria Slade’s new book Buyer Beware,  A New Zealand Home Buyer’s Guide, talks about the challenges facing home buyers. Published by Penguin Random House, RRP$30, available in bookstores or online here.

The post When is the right time to buy a house? Is there a magical time to act? Are we asking too many questions? appeared first on Credit Simple NZ.

Rental properties are a licence to make money, aren’t they? All you need to do is buy, and watch the price go up, up, and up.

The answer to that is yes and no. Property investors don’t all become squillionaires overnight. It’s not a licence to make money. And long-term investors say capital gain is by no means the number one number they consider when buying.

Sadly the world is littered with failed residential property investors who thought it would be easy money or fell for the so-called wealth gurus. If they’re lucky, they escape with their money and sanity intact. Some don’t.

Lessons for young players include:

• Thinking it’s easy. Owning rental property means managing tenants. There’s lots of work involved in sourcing and managing tenants, chasing non-payers, maintaining properties and handling the paperwork such as tax returns. It’s a business and a job in its own right, not just a licence to print money. You really need to do your due diligence.
• Choosing a property you’d like to live in yourself. There is a big difference between a home and a rental property. Property investment is about making money, not choosing a pretty house you’d like to live in yourself. It’s all about the yield. That’s the income after all costs are deducted expressed as a percentage. Yield is your return on investment. Often the best rental yields come from simple properties, not architecturally designed ones with complex landscaped gardens. A simple HardiePlank or concrete block box can be far more beautiful to your bank account than a stunning home in Fendalton or Remuera.
• Not enough cash flow. Like any business investment you need money coming in to cover the expenses of mortgage, rates, maintenance, insurance, property management fees, and so on. Topping up the mortgage month after month can be a real drag. Even worse is if you lose your day job due to illness, accident or redundancy, can’t make the mortgage payments and end up in a mortgagee sale situation. Banks can, and often do, take your own home as well when your investments turn to custard.
• Not appealing to tenants. Some properties have trouble written all over them. They’re hard to rent because of factors such as being in the wrong location, not being secure, being too far from the shops or public transport, and so on. If the turnover of tenants and vacancy rate is high and you don’t have a ready flow of tenants you may have to reduce the rent or go without for extended and expensive periods of time between lets. Or because they’re hard to rent you drop your standards and end up with troublesome tenants at best and P-cooks at worst.
• Not planning for interest rate shocks. Too many new investors are doing their numbers on 5% interest rates. Rates can rise. It’s much better to do your numbers on a much higher interest rate such as 7%. If you can still afford it then you know you can weather an uncertain future.
• Failing to keep an emergency fund. Unexpected expenses can arise out of the blue. Just ask Christchurch landlords whose properties were left uninhabitable after the earthquakes of 2010 and 2011. Or if your tenant cooks P and you don’t have adequate insurance you could be up for tens of thousands of dollars for remediation work. Ask yourself what happens to you financially if the roof on your rental needs replacing? The list goes on and on.

Tips for new players:

If you can work your way through the downsides there are of course some very good upsides. None-the-less it’s important to do a thorough budget. All too often new investors leave out costs such as renovation or underestimate those costs. Or they overestimate the income from the property based on rosy pictures painted by real estate agents who had the commission carrot in front of them. Here are some useful tips to get you started:

• Do a budget. Rental properties are all about the returns week in week out. The capital gain is just the icing on the cake. In the meantime you need to make ends meet. That’s all about the ‘net rental yield’ after expenses. QV has a good calculator to work that out here. But your number crunching needs to include a lot more than just yield. All too often new investors do a ‘back of the envelope’ budget. It’s far better to use a spreadsheet, app or calculator. There are many very good property investment calculators around. A good place to start is Westpac’s Property Investment Calculator. There are a number of apps for iOS and Android devices available online as well.
• Run a proper analysis of the do-up work. Even if you plan to do the work yourself, you might want to get a professional to put together a budget for you. For those who want to do their own budget, the ASB provides a free renovation spreadsheet. If that doesn’t work for you, try Googling ‘rehab spreadsheet’ or ‘renovation spreadsheet’.
• Budget more than you need. If you hadn’t noticed, good tradespeople are as rare as hen’s teeth in New Zealand thanks to all the earthquake repair work to be had. Even if you can get them their rates have gone through the roof. You need to build in a huge buffer to maintenance and improvement budgets.
• Understand negative gearing. It’s rare, but not unknown, to buy a rental property that turns a profit on the rent from day one. Most properties, however, are ‘negatively geared’, which means they make a small or not-so-small loss on day-to-day income and expenditure. That loss can be claimed against taxes paid on your day job providing you have the correct ownership structure in place. The tax implications are different depending on whether the property is owned in your name, a family trust, a look through company or a limited partnership. It’s essential to get advice on this from a property accountant or company structure specialist before buying. Otherwise you could cost yourself in unnecessary tax payments.

Finally, you can do it. Get yourself some good property investing books out of the library and read them. Look for the ones with practical information rather than those that claim to reveal the ‘investment secrets’ of getting rich quick. What you need is boring books that are packed full of detail about how to do the numbers, manage the property, and run your rental business.

The post Does your rental property make you money or just look pretty? appeared first on Credit Simple NZ.

Do you like baked beans? Unless you want to be eating student grub for the next few years it’s a good idea to figure out how much house you can really afford.

Don’t be fooled by what the banks tell you that you can borrow. It’s not the same question. Can you really afford the repayments? Really? The banks’ calculators don’t always take into account all the other things you have to pay for when you’re a home owner.

What they do is crunch a minimum monthly surplus that the average person has after living costs are deducted. Who’s to say your spending patterns are “average”. What’s more, this “uncommitted monthly income” (UMI) calculation varies from bank to bank.

Every home buyer needs to do his or her own number crunching. The banks’ computers can’t predict that you’ll be dropping to one income when babies come along or, on the other side of the coin, that you’ll have an extra $1,000 a month earnings from Airbnb for a spare a room or sleepout you plan to let.

Here are some of the ‘what can I afford’ tricks and traps you’ll need to consider before signing on the dotted line of those mortgage documents:

Trick: Write yourself a monthly housing budget and compare it against your current spending. It’s often said that you shouldn’t be paying more than 40 per cent of your gross household income in mortgage payments. Make sure your budget includes repairs and maintenance, rates, water, utilities and insurances including house, contents, life, income/mortgage protection. Don’t forget to build in a buffer to cover for unexpected expenses such as insurance excesses.

Trap: Small deposits mean higher fortnightly or monthly mortgage payments. Bigger really is better when it comes to deposits. You’ll also find you become more attractive to lenders the larger your deposit gets.

Trick: Try living on your house budget for a few months to see if you can really afford to take the plunge. If you’re struggling every single week to make ends meet you might want to juggle your budget. Can you buy a more modest house?

Trap: Apartments are often way cheaper than other types of properties to buy. But most banks are nervous of lending on apartments and require bigger deposit than they do for standalone houses or home units. What’s more you’ll need to pay body corporate fees and sometimes leasehold charges on an apartment. Having said that, these fees reduce the amount you pay in maintenance because you only need to pay for work on the inside of your home not the outside.

Trick: Boost your income. Moonlight, sell stuff, start a business, rent your spare rooms to students, boarders or flatmates, get a promotion, babysit, sign the children up as actors or models, or simply spend less. Make a game of choosing not to buy things you’ve convinced yourself you “need”. That frees up more money for mortgage payments.

Trap: Some people fail the banks’ UMIs, but can in reality afford the mortgage. They might be the type of people who live on the smell of an oily rag and can prove it with their bank statements. It’s a really good idea in this situation to use a mortgage broker. Brokers (aka advisers) know how to overcome such road blocks.

Trick: Interest rates can rise and fall. It’s best to do your numbers on rates that are a fair chunk higher than currently. Someone who is really cautious might want to add two percent to the current rate. That way you’ll be sure you can stomach an interest rate rise, which will come eventually. Twenty five years is a long time and rates won’t always be at five per cent or below.

Finally, happy house hunting.

The post Trick or trap: How much house can you really afford? appeared first on Credit Simple NZ.