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849 posts

Ultimate Geek
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  Reply # 723799 27-Nov-2012 19:08 Send private message

shreyas:
jonherries: We have just bought our second home and are about to finalise our mortgage.

Subscribe to the interest.co.nz/mortgage newsletter. Every morning, they send you the public retail mortgage rates for all the banks, along with some good articles.

Worth noting that Kiwibank has a special until Christmas for 6 months fixed at 4.85% which is pretty good.

Things I am taking into account with our mortgage:

world economic outlook and the impact on NZ - hard to determine whether it will get worse or better, so I assume not too much change either way (to me there appears to be some large downside risks due to technology, debt, the environment and politics.
changes in circumstances - do we want certainty in our payments and for how long, that certainty also means that you limit your ability to pay off more. Think jobs/salary/redundancy/kids/pets/inheritance etc.
hedging - as most people have mentioned they have split their loans into lots of parts, this limits the risk of being stung if the rates go up but also limits the benefits if they go down.

I would suggest that you do some reading about what influences mortgage rates and then make an informed decision.

For me at this point, we are probably going to put a decent chunk on the 4.85% with a plan to pay off as much as possible of the smaller chunk in the first 6 months using an offset type approach, as it generally takes that long to think about what you need to do to the house and get it organised/priced etc.

Oh and don't forget life insurance, set it at the level of your mortgage just in case.

HTH

Jon


Is it advisable to go with the same bank for life/mortgage insurance? I know some banks can pressure you to buy mortgage insurance from them.


FYI Kiwibank just quoted me a 35% price increase on my current insurance for less cover.

Needless to say I wont be changing.

Jon

436 posts

Ultimate Geek
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  Reply # 723800 27-Nov-2012 19:21 Send private message

mattwnz:
minimoke: OK, a couple of thoughts.
Firstly RV has NO relationship with the value of your property. It is simply a tool your council uses to divide the city up and to extract rates. Using the Rating Valuation as a means of assessing whether you paid too much or got a bargain is fatally flawed.



That is not entirely correct, and ask people in Christchurches red zones who have to sell at their RV's,. RV is the newer name for Government valuation, and the RV is what the government would buy your house back if they needed to. Such as in the case of Christchurch red zones. Many peoples RVs are not correct, but that is their fault for not getting them updated to reflect the the value of recent improvements, or the house is special in some way. This is why there is a review process for RVs when they are released. So if the RV isn't correct, the homeowner must contact the council to get them updated, as it is the homeowners responsibility to make sure the RV is correct and accurate. They will then send a personal assessor to come out and personally value your property. Our property went up 50k when we got our redone. We also have a private assessor do an assessment and their revalue was only 2k more than the RV, so the RV can be very accurate if done right.
So I would be wary of ever paying much more than the RV, depending on the date when it was done. Otherwise when the property bubble bursts, you can get caught in the trap of negative equity, which makes banks very nervous. Especially when you owe more than the house is worth in the current market. In my area house have been selling for RV or slightly below. The other thing is that house buyers, especially in a tight market, will use the RV as a price guide. Unfortunately property bubbles like the one in Auckland can cause some major problems further down the track for house  buyers. Many people who have borrowed at these historically low rates, possibly couldn't afford the repayments if they rose up only a few percentage points.

Having lost a property in the redzone I can assure you the RV is not the valuation of the property. A brokken house with liquifaction throughout and in a street with all service wrecked is worth pretty much nothing. The Red Zone RV is simply a settlement valuation. It was an arbitrary figure which had to be based on something. Other tethan ht eRV there was little else that was pragmatic to rely on.

 

No RV is accurate. Indeed it is impossible for it to be so. It is based on a desktop valuation at a point in time. Very few properties are ever actually visited. And even if they are visited the market will have shifted by the time the RV comes out. An RV doesn’t have to be “correct”. Its only purpose is to find a number that can then be put into an equation to determine how the rates budget is going to be funded. RV’s are also used in a very general macro sense but if a person wants to spend money getting their RV reduced so they pay a smidge less in rates, that’s there business. Likewise if they want bragging rights on their valuable home they can pay for that privilege as well. Me – I’m happy to cruise under the radar and if I need to fund a loan I’ll get a valuer in f0r the purpose.

 

People will only get trapped in negative equity if they have put too little deposit into their house, fail to pay down the loan and the market drops significantly. That’s a function of market forces and buyer discipline, not RV. These 95% mortgages are madness in my mind – anyone entering into such an arrangement is setting themselves up for a fall.

 

Rather than using the RV as a price guide (which it isn’t, never was and not designed to be!) I’s suggest buyers check out the Real Estate institute monthly sales stats for their area. Not entirely reliable but at least they give a sense of the market at that particular time.






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  Reply # 723825 27-Nov-2012 19:57 Send private message

jonherries:
shreyas:

Is it advisable to go with the same bank for life/mortgage insurance? I know some banks can pressure you to buy mortgage insurance from them.


FYI Kiwibank just quoted me a 35% price increase on my current insurance for less cover.

Needless to say I wont be changing.

Jon


in my experience, the insurance the banks push is almost always an inferior product.  last time I got my back to price up policies the difference ranged from 20% to 50% more expensive for less cover and fewer features.

I also find that if you get all your policies from one company, you're often not getting the best deal.  I have two policies at one insurer, and two policies at two more different insurers.  not one of the three insurance companies gave me a better deal for 'all 4 policies', even when accounting for the multiple policy discounts.




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  Reply # 723832 27-Nov-2012 20:20 Send private message

minimoke:

 

No RV is accurate. Indeed it is impossible for it to be so. It is based on a desktop valuation at a point in time. Very few properties are ever actually visited. And even if they are visited the market will have shifted by the time the RV comes out. An RV doesn’t have to be “correct”. Its only purpose is to find a number that can then be put into an equation to determine how the rates budget is going to be funded. RV’s are also used in a very general macro sense but if a person wants to spend money getting their RV reduced so they pay a smidge less in rates, that’s there business. Likewise if they want bragging rights on their valuable home they can pay for that privilege as well. Me – I’m happy to cruise under the radar and if I need to fund a loan I’ll get a valuer in f0r the purpose.





Our RV is accurate, but that is because they did come out to visit it. But many peoples aren't because QV have got their system that works out house prices enmass. The vast majority of houses are pretty similar things, and not the greatest quality either, so this works reasonably well.  But many people don't want their RV to be accurate, because it means they pay less rates, as rates are usually based on the RV of the property. So the less this amount is, the better for them , but it does come back to bite you in the case of a buy back. hit.

That is why I think rates should be based on LV and not the RV. The LV is often very high, and often houses can be worth far less than the cost to actually rebuild them.. Although rebuilding them would mean better construction standards and energy rating, which costs more to do anyway. But rating on the RV means people get penalised/taxed for having a nicer home.
In Chch with were quite a few people who had pumped money into their property, but hadn't had the property reaccessed in order to get the RV updated, so they lost a lot of money as they were only paid out on the old RV.
This is why I certainly wouldn't pay much over the RV in Wellington, where the odds of a big earthquake are quite high, as it could mean losing a lot of money if a large earthquake if a buyback is needed.
I also wouldn't put much faith in some registered valuations, as during the last property boom, some of these were massively exaggerated, to allow banks to lend more.  

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  Reply # 723844 27-Nov-2012 21:01 Send private message

80% fixed, 20% floating, fortnightly payments.



69 posts

Master Geek


  Reply # 729923 10-Dec-2012 18:34 Send private message

Thank you for the great recommendations/advice all! It has helped me understand home loan structures to a great extent.

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