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474 posts

Ultimate Geek


  # 2333135 9-Oct-2019 06:52
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jonathan18: Yeah, where does this hugely different approach come from? Generally 5 years seems to be the max term available here, whereas it seems common in the US for the rate to be fixed for the full length of the loan.
We’re the exception over here as we signed on for 15 year mortgage @ 3.25%, rather than a fixed 30 year loan that is the most common mortgage here in the US. But then most loans here are resold/managed Fannie May/Freddie Mac offerings.

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Ultimate Geek


  # 2333136 9-Oct-2019 07:04
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Rates are predicted to stay low for a while yet. Beyond that, predicting the actual rates is a bit like reading tea leaves.

 

 

 

I'd go for the lowest rate over two years. BUT work out what it would cost you at the 5 year rate and increase your repayments by the difference between the two payments.

 

 

 

I'm one of the "back in the old days I was paying 25% on my mortgage" so I dont stress about half a percent at 4 %.. But I do worry for people when rates do eventually rise. So best to pay off as much as you can as early as you can.

 

 

 

I ran my mortgage on a large part fixed for two years. The rest was on revolving credit and I paid all I could off this mortgage as extra cash became available.Plus it gave me a line of credit so no problems with getting more cash when I was a bit low. 


 
 
 
 


1449 posts

Uber Geek


  # 2333161 9-Oct-2019 08:06
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I took 2 years at 3.79% with our insurance policy against higher rates when we come off fixed being that we're going to increase our repayments substantially at the end of this year. Our bank gives us the option of increasing our payments up to three times a year so we'll make use of that. 

 

We're not in the best area so I'm don't want to overcapitalise but we're going to do basics like repaint doors and lay some new carpet (60 sqm) and just keep the place tidy. Otherwise that money is better spent paying down debt. 


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  # 2333189 9-Oct-2019 09:16
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jonathan18: Yeah, where does this hugely different approach come from? Generally 5 years seems to be the max term available here, whereas it seems common in the US for the rate to be fixed for the full length of the loan.

 

 

 

Firstly, it makes banks more money to do it the way that they do it here. We have a relatively unsophisticated loan and insurance market compared to Europe and the USA, so the banks have little incentive to do do other than leave it as is.

 

 

 

Second, the long fixes in the USA are effectively underwritten at Federal level. The US long ago realised that providing citizens with reasonable rates for a long time was sensible.

 

 

 

We could do the same here, I think - we could use the Cullen Fund to lend to NZ citizens at more reasonable rates. However, that requires a step change in government thinking. Remember, everyone thought I was mad when I said several years ago that interest rates here would have little choice but to follow the lead of the Europeans and Americans downwards.






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  # 2333207 9-Oct-2019 09:45
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Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

 

Why would that be? Surely, you are borrowing the same amount regardless of how you structure it?

 

 


zyo

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Ultimate Geek


  # 2333283 9-Oct-2019 11:26
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networkn:

 

Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

 

Why would that be? Surely, you are borrowing the same amount regardless of how you structure it?

 

 

 

 

 

 

Because banks know you are not going to be able to move the mortgage away in its entirety (without incurring break fee) if they don't offer you a competitive rate?


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  # 2333286 9-Oct-2019 11:31
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zyo:

 

networkn:

 

Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

 

Why would that be? Surely, you are borrowing the same amount regardless of how you structure it?

 

 

 

 

 

 

Because banks know you are not going to be able to move the mortgage away in its entirety (without incurring break fee) if they don't offer you a competitive rate?

 

 

Most banks I have spoken to are happy to cover all or a portion of the break fees anyways? Dependant on size of borrowings etc.

 

 


 
 
 
 


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Master Geek


  # 2333292 9-Oct-2019 11:52
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Handle9:

 

zyo:

 

Handle9:

 

The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.

 

The one thing you should do is go to the market. You'll need to invest about 10 hours, or get a broker to do it for you. You can play the banks off against one another and then give your current bank the right to match the best deal you get. Often they will match, or at least get close enough that it isn't worth leaving.

 

I've always been really transparent with my bank that I expect them to meet the market and I've only changed twice in 15 years.

 

 

 

 

Exactly, I dont understand the averaging technique as having smaller chunks maturing at different dates makes it almost impossible to switch bank if the current lender is no longer competitive.

 

As I mentioned if you got good credits the cash back banks offer when you switch can be substantial, even if you don't plan to switch, it might pay to ask your current lender to offer some cash incentive in exchange for a lock-in period.

 

 

It works well in a volatile market as it insulates you from rapid rate rises. IMO in the current ultra-low interest rate environment it's not so effective.

 

Things can change quickly though so there is definitely a risk.

 

 

Leaving aside the issue of the rate you have been quoted not being competitive and you can definitely get them to sharpen their pencil, a chunk of the decision may come down to your appetite for risk.   Are you the sort of person who needs to protect themselves from an unexpected rate rise?  Perhaps you are currently stretched when making repayments, or are planning a family and might drop to 1 income over the next few years.  If a sharp uptick would push you into squeaky bum territory then fixing would be a good idea.  Sure you will have paid more if rates go down, but you also wont be on the street if rates go up.

 

When we got our mortgage it was 8%, but within a few years we had to suffer 11.99%, and had no idea if the rates were going to go even higher.  I can assure you it was a frightening change in our budget, we did it tough for a few years.  And perhaps relevantly to this thread, at the time we took out the 8% mortgage we were told there was no chance rates would spike by both the professional and armchair experts.   Rates may fall, personally I think that's likely, but noone really knows and from experience I reckon free advice is worth what you pay for it.

 

If your budget isn't that tight, then its worth thinking about the options.  I agree with one of the other posters about heavily laddering across different years, my old office mate had a terrible time trying to shift his mortgage to another bank when he did that.


zyo

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Ultimate Geek


  # 2333298 9-Oct-2019 12:11
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networkn:

zyo:


networkn:


Handle9:


The averaging technique is OK but you do lose the leverage with your bank to get the best possible rate / cash incentives.



Why would that be? Surely, you are borrowing the same amount regardless of how you structure it?


 



 


Because banks know you are not going to be able to move the mortgage away in its entirety (without incurring break fee) if they don't offer you a competitive rate?



Most banks I have spoken to are happy to cover all or a portion of the break fees anyways? Dependant on size of borrowings etc.


 



The break fee for a 700k loan for 3 years with .5% interest rate difference is over 10k. That plus laywers fee I think you'd be lucky if they cover 50%.
Banks usually wouldn't care for you to move if they are compensated with the break fees.



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Master Geek

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  # 2333316 9-Oct-2019 12:54
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Wow, thanks for the wealth of information on this.

 

I am the first to admit that I have little to no knowledge in this area, and rather blithely thought that all the banks would be much of a muchness.

 

bazzer:

 

For a start, 4.09% is way too high. I just fixed 2 years at 3.45% so you should be able to get better than what you are.

 

Are you happy paying 1% more for the next two years, with the possibility that for three more years after that you might have a good rate? Only you know the answer to that. Every time I've locked in for more than 2 years I've been disappointed but it's been a long time since we've been in a climate of significantly rising interest rates.

 

 

A very valid point. We're looking at around $150k, which is roughly 1/4 of the current house value. Our income is steady enough, I suppose. 

 

Given my laughable lack of understanding of all the complexities involved in a home loan, I've made an appointment with a mortgage broker to see what they can do for me.


907 posts

Ultimate Geek


  # 2333419 9-Oct-2019 15:01
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Gurezaemon:

 

Wow, thanks for the wealth of information on this.

 

I am the first to admit that I have little to no knowledge in this area, and rather blithely thought that all the banks would be much of a muchness.

 

bazzer:

 

For a start, 4.09% is way too high. I just fixed 2 years at 3.45% so you should be able to get better than what you are.

 

Are you happy paying 1% more for the next two years, with the possibility that for three more years after that you might have a good rate? Only you know the answer to that. Every time I've locked in for more than 2 years I've been disappointed but it's been a long time since we've been in a climate of significantly rising interest rates.

 

 

A very valid point. We're looking at around $150k, which is roughly 1/4 of the current house value. Our income is steady enough, I suppose. 

 

Given my laughable lack of understanding of all the complexities involved in a home loan, I've made an appointment with a mortgage broker to see what they can do for me.

 

 

 

 

I was skeptical at first but now I would never get a mortgage directly with a bank.  Using a broker means they do all the leg work and will get you better rates.  We just got a new mortgage when purchasing a second home and in addition to getting rates 0.5% off advertised we also got $7000 cash.

 

My brother spent ages going from bank to bank trying to get pre-approval and was actually told by a couple of banks he would have to approach a second tier lender.  Talked him into using our broker and within a week had pre-approval from a bank.  


1091 posts

Uber Geek


  # 2333437 9-Oct-2019 16:00
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Geektastic:

 

Firstly, it makes banks more money to do it the way that they do it here. We have a relatively unsophisticated loan and insurance market compared to Europe and the USA, so the banks have little incentive to do do other than leave it as is.

 

Second, the long fixes in the USA are effectively underwritten at Federal level. The US long ago realised that providing citizens with reasonable rates for a long time was sensible.

 

We could do the same here, I think - we could use the Cullen Fund to lend to NZ citizens at more reasonable rates. However, that requires a step change in government thinking. Remember, everyone thought I was mad when I said several years ago that interest rates here would have little choice but to follow the lead of the Europeans and Americans downwards. 

 

Yeah - Naaaah. 

 

The Federal (virtual) underwriting encouraged the reckless lending that led to the housing bubble and subsequent crash, that led to the loss of everyone's 401k's (retirement funds). I'm not sure sure the big banks should be able to gamble with the Cullen fund like the banks have gambled away peoples retirement savings in the USA.

 

The reserve banking insisting that the Banks increase their capital holding sends a clear signal that in NZ reckless lending is gambling with the banks survival, not the taxpayers money. 

 

I find it ironic that in the USA where they are vehemently opposed to socialism, the Federal (virtual) underwriting is national socialism by another name. 


175 posts

Master Geek


  # 2333438 9-Oct-2019 16:01
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blackjack17:

 

Gurezaemon:

 

Wow, thanks for the wealth of information on this.

 

I am the first to admit that I have little to no knowledge in this area, and rather blithely thought that all the banks would be much of a muchness.

 

bazzer:

 

For a start, 4.09% is way too high. I just fixed 2 years at 3.45% so you should be able to get better than what you are.

 

Are you happy paying 1% more for the next two years, with the possibility that for three more years after that you might have a good rate? Only you know the answer to that. Every time I've locked in for more than 2 years I've been disappointed but it's been a long time since we've been in a climate of significantly rising interest rates.

 

 

A very valid point. We're looking at around $150k, which is roughly 1/4 of the current house value. Our income is steady enough, I suppose. 

 

Given my laughable lack of understanding of all the complexities involved in a home loan, I've made an appointment with a mortgage broker to see what they can do for me.

 

 

 

 

I was skeptical at first but now I would never get a mortgage directly with a bank.  Using a broker means they do all the leg work and will get you better rates.  We just got a new mortgage when purchasing a second home and in addition to getting rates 0.5% off advertised we also got $7000 cash.

 

My brother spent ages going from bank to bank trying to get pre-approval and was actually told by a couple of banks he would have to approach a second tier lender.  Talked him into using our broker and within a week had pre-approval from a bank.  

 

 

 

 

We use a broker and wouldn't do it any other way. It is hassle free and from what I can tell we get sharp rates every time we renew 

 

As has been said before, if you want stability in your outgoings, fix for a longer period. We have been fixing for 12 months at the time for the past 5 years and it has worked well for us.

 

Signing up for different fixed terms to try and buffer fluctuations works if you are not planning to switch banks, it is harder otherwise. 

 

 

 

 

 

 

 

 


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  # 2333439 9-Oct-2019 16:18
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networkn:

Most banks I have spoken to are happy to cover all or a portion of the break fees anyways? Dependant on size of borrowings etc.


 


They won't give you any more cash than they would if you didn't have break fees.

The point is that you lose flexibility and hence leverage. I generally have the goal of staying with my current bank to save dramas, although I will be changing from TSB when my fixed rate is up

2971 posts

Uber Geek


  # 2333453 9-Oct-2019 16:59
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I think I’ve had the complete opposite experience with a broker.
At the time I worked for a bank, and they gave us a staff discount of like 0.1% off of whatever the current retail lending rate was at the time (plus no fees on any account for any reason, including break fees). Got about $5k cash back as well.
The broker we used (squirrel) got us market rates and barely over $1k cash back. Pointless and just as easier to deal with banks directly if you have all your paperwork ready. The only thing that made us go with the bank I worked for was the fees otherwise the other bank we spoke to were able to match.

We split the mortgage into 3 and fixed each at different terms (1, 2 and 3 years) and I’m glad we have considering how far rates have dropped even just in the last 6 months.

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