Bo-Jangles

Not that I have my finger on the global pulse but should be noted that NZ current interest rates are at 'unprecedented lows' at just under 6%; I think therefore it only has one way to go from here and has been threatened for some time but not yet materialised.

http://www.rbnz.govt.nz/statistics/k...ortgage_rates/

BEVS

I don't watch it closely these days since we have no savings to write home about and managed to pay off the mortgage after over 30 years of one hanging around the neck.

Can't see how the rate cannot rise.

Pom_Chch

Thanks for the advice Bo and BEVS. I am new to this mortgage malarkey so it pays to know as much as possible.

I can totally see where you are coming from with having a mortgage with only 2% interest in the first few years. If the bank allows you to pay off as much as you want then that's great. I know some mortgages come with the condition that you are only allowed to pay up to a certain amount each month in the hope you won't clear the loan too quickly. I know a friend if mine in the UK has that attached to her mortgage. She mentioned her repayments are really low so i asked her why she doesn't increase them. Apparently her bank won't allow repayments higher than what she is already doing. That to me is ludacris!

I also feel that a low introductory rate for 5 years is great. But then what about the other 25 years? If interest is exceptionally low for the first five years and then much higher for the remaining 25 years it just feels like a bum deal! Unless like you mentioned you can pay off huge chunks at the start when interest rates are lower. Then it could work out well.

Bo-Jangles

No you miss the point, you're not locked into the same mortgage with the same provider for life. After your fixed term you're free to do whatever you want, refix another fixed term deal with same provider, another bank or pay it all/ or some of it back in lump sum. All that happens at the end of the term is that you revert to standard variable rate. It costs about $250 to change your mortgage and quite often the fees will be waived as incentive to jump ship or take on the lenders latest product.

The banks do all have a margin beyond which they won't allow you to over pay - some I think is 15% but over the term of 30 years even $20 a week can make a vast difference.

Anyway, besides all that my original point relates to those that already have mortgages in the UK and would be looking to have similar in NZ. In simple terms transferring £100k of UK mortgage to NZ Mortgage will cost an extra $6,000 by my calculations and you'd have to have a blooming lot of savings or miss out on a lot of disposable play money to make up for that kind of a hit on the family finances. Is it any wonder that people find the finances here more difficult to manage.

Tom1983

$1,733 on average per month for a the 3 bedroom apartment outside the city centre for Chch

That's around $400 a week

$400 for a 3 bedroom??? Are they certain they used Christchurch and not Picton???

And $5.17 for a beer in statistics NZ, when I see a beer at that price, i'll become a regular.

Pom_Chch

Yep, I'm with ya. I didn't account for switching mortgage providers.

It all comes down to individual circumstances and preferences. Although we will be paying higher interest on a mortgage we will be getting more back on our savings. Also the kind of house we are looking at here we would never be able to afford in the UK. Probably not even in 10 years time. But i fully understand the same does not apply to everyone. For us the higher interest is worth the trade off for a much nicer home. For others it may not be and it's always worth doing your sums.

BEVS

I've had a with the above question given the link that went with the post .

I'm not sure you quite get how it works still . The rates you pay following the end of a fixed rate term are not written in stone if that is what you may be thinking Pom-ChCh.

At the end of a fixed term or a tracker term , one is free to shop around and refix at a favourable rate.

The increased rates referred to in the link you gave show the offer rates and the bank's ordinary variable rates. That is all.

One could choose to go on variable , depending on circumstances or one could look for a better deal , lower than the variable and go with that.

So, as long as there are good deals to be had most people will go with those.

disclaimer: These posts are not meant as advice to anyone. It's just an exchange.

Pom_Chch

Yes, I do understand now. Just had to get my head around a couple of things. I am aware you are free to shop around for the best deal and the different types of mortgages available. I also understand that fixed rates are not set in stone

Bo-Jangles

Quite each to their own but whilst driving around town, shopping around and scrimping about trying to save $1 on the groceries it's more worthwhile to do those big high finance sums; including figuring out if it's worth your while having any savings at all if you have a massive mortgage. Revolving credit would be the way to go if you want money at your fingertips.

If after having taken out a brand new mortgage you find yourself in the enviable position of being able to save; you can of course justify it to yourself in terms of perceiving to be getting 'more' for your savings here also but what you're paying out on the mortgage interest far outweighs any interest you can earn from savings and in reality is you probably won't get all that much after tax; the UK provides many tax free saving options, bonus schemes, pensions, ISAs and such like.

Whilst I am no financial advisor and don't get paid to say so, it would still be better to chuck all your spare money at the mortgage in the early years and again I say revolving or a mixed approach including an element of revolving would be the thing to do.

BEVS

Great minds and all that.
I came back on here to say precisely the same.

Sticking this in quickly as I have to go.

Look for an amortisation calculator and play around with it.
You will start to see just what you could save.

Pothy

I know which country I would prefer to have a mortgage in! We left UK in 2007 (height of the boom) and were paying 4.75% on our $125,000 mortgage. Came to NZ same size mortgage but paying over 10% (were we totally mad!!!!!!!!!!!!). Dropped to 5.75% eventually but still way higher than the amount we paid even during the boom times in the UK! NZ's rate will just start to climb, historically NZ has always had a much higher interest rate than UK and always will. As for better housing - we have a bigger house but is it better no I doubt it - cold in the winter (only heat one room) and damper. If I wanted to spend all my disposable income on my electricity bill then I could put a heat pump in each room but instead I have brought myself a pair or two of pyjama's and some woolly socks and a hat! Still miss my warm, dry smaller UK house and always will!

The Weezer

I couldn't find an explanation on the Statistics NZ website explaining how they determined these prices. Maybe it's there, but I couldn't find it quickly. Not knowing how these prices were determined makes a real life application of them difficult. I don't usually eat sliced white bread, which is what's included on the price list. Whole grain bread in NZ is very expensive. Sometimes I can find it on special for $3.49, but more usually it's over $4.00 a loaf. You can get cheaper loaves, but they really aren't wholegrain, and the more wholegrain they are, the more expensive. The price I quote above is for the brand which has the least refined flour I can find. What you get in the supermarket isn't all that good anyway. So-called artisian loaves in fancy shops like Farro's cost a lot more than that.

Of course, you can always bake your own, but I would find it difficult to do it all the time, and anyway, whole meal flour isn't all that cheap. I looked on the Tesco's website and a 1.5 kilo bag of supermarket brand wholemeal flour is 85p. At Countdown in NZ a 1.5 kilo bag of supermarket brand wholemeal flour costs $2.25.

Pom_Chch

Absolutely agree with the revolving credit mortgages. This is what our plan is - chuck as much money as possible at repayments whilst we can to get us in a better financial position later on in life. We have also calculated our repayments based on 7% interest, which I would urge other people to do.

Charismatic

The problem is credit growth in New Zealand pushes housing into a bubble rapidly because it's very tax efficient and you can get cheap leverage. RBNZ have to be ultra conservative, also the UK got rates very wrong prior to 2008 as is widely seen, even by those who set them at the time, as being too low. Taxation can be changed however, in some countries manufacturing or banking are more tax efficient investments.

Interesting to see Russell Normal commenting that because CPI (which excludes gains in many classes of assets, such as housing) is low rates should stay low. Bit of an oversight in my view.

BEVS

A good amortisation calculator which allows you to view the schedule