Competition for Mortgages

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#1231206 4-Feb-2015 16:06

nzkiwiman: I don't own a house, and have never chased a mortgage
Just wondering why all these banks are now giving you $1-2-3k for taking out the mortgage. I assume that you can't turn around the use that money as a payment - they probably expect you to spend it on something you don't need.

Because people are, in general, stupendously shortsighted and material-minded.

Case in point - take out a mortgage and get a "free" iPhone 6!!!

Alternative - replace the iPhone 6 with cash and make a payment reducing the principal you are paying back immediately.

Over the course of a 30 year mortgage that $1200 reduction in principal would have saved you more money ($2590 in 2015 dollars on a 500,000, 6%, 30 year mortgage). Your iPhone 6 will be a worthless piece of scrap somewhere.

Same with similar deals with TVs, Playstations etc.

If the bank is offering you free stuff - they will be making money out of you. You should turn that into an opportunity to reduce the overall cost of your borrowing as much as possible - not to get gadgets. By taking the device the bank wins again - they sure as heck aren't paying retail for that stuff.

Oldmanakbar

110 posts

Master Geek

#1231242 4-Feb-2015 17:28

nzkiwiman: I don't own a house, and have never chased a mortgage
Just wondering why all these banks are now giving you $1-2-3k for taking out the mortgage. I assume that you can't turn around the use that money as a payment - they probably expect you to spend it on something you don't need.

You can't directly use it as part of the deposit as most banks only give you the money after the mortgage is drawn down. I for example got my $3000 about 4 hours after the mortgage went live.
But you can just turn around and drop it into the mortgage if you want with most banks. It usually just depends if you are on floating or fixed how that works, but its doable.

The other thing is if you use a broker for your mortgage, the bank pays them a commission that is percentage based, but would be a couple of grand on standard mortgage. So in reality, they are paying $5000 or more for your business.

mattwnz

20163 posts

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#1231335 4-Feb-2015 19:27

wasabi2k:
nzkiwiman: I don't own a house, and have never chased a mortgage
Just wondering why all these banks are now giving you $1-2-3k for taking out the mortgage. I assume that you can't turn around the use that money as a payment - they probably expect you to spend it on something you don't need.

Because people are, in general, stupendously shortsighted and material-minded.

Case in point - take out a mortgage and get a "free" iPhone 6!!!

Alternative - replace the iPhone 6 with cash and make a payment reducing the principal you are paying back immediately.

Over the course of a 30 year mortgage that $1200 reduction in principal would have saved you more money ($2590 in 2015 dollars on a 500,000, 6%, 30 year mortgage). Your iPhone 6 will be a worthless piece of scrap somewhere.

Same with similar deals with TVs, Playstations etc.

If the bank is offering you free stuff - they will be making money out of you. You should turn that into an opportunity to reduce the overall cost of your borrowing as much as possible - not to get gadgets. By taking the device the bank wins again - they sure as heck aren't paying retail for that stuff.

Totally agree. The problem in NZ is that people borrow as much as they can afford, which is why when interest rates drop, house prices rise, as people can afford to borrow more. So in short supply, the house goes to the person prepared to pay the most for it. The case in point is the Auckland market. Also having two wage earners in a family also means that people can afford to pay more for a house than they traditionally used to.

One thing I don't really understand is that the reserve bank has raised the OCR over the last few years, which initially did raise interest rates a little. But they have now drop back down to what they used to before the OCR rise.

Fred99

13684 posts

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#1231390 4-Feb-2015 21:40

mattwnz:
wasabi2k:
nzkiwiman: I don't own a house, and have never chased a mortgage
Just wondering why all these banks are now giving you $1-2-3k for taking out the mortgage. I assume that you can't turn around the use that money as a payment - they probably expect you to spend it on something you don't need.

Because people are, in general, stupendously shortsighted and material-minded.

Case in point - take out a mortgage and get a "free" iPhone 6!!!

Alternative - replace the iPhone 6 with cash and make a payment reducing the principal you are paying back immediately.

Over the course of a 30 year mortgage that $1200 reduction in principal would have saved you more money ($2590 in 2015 dollars on a 500,000, 6%, 30 year mortgage). Your iPhone 6 will be a worthless piece of scrap somewhere.

Same with similar deals with TVs, Playstations etc.

If the bank is offering you free stuff - they will be making money out of you. You should turn that into an opportunity to reduce the overall cost of your borrowing as much as possible - not to get gadgets. By taking the device the bank wins again - they sure as heck aren't paying retail for that stuff.

Totally agree. The problem in NZ is that people borrow as much as they can afford, which is why when interest rates drop, house prices rise, as people can afford to borrow more. So in short supply, the house goes to the person prepared to pay the most for it. The case in point is the Auckland market. Also having two wage earners in a family also means that people can afford to pay more for a house than they traditionally used to.

One thing I don't really understand is that the reserve bank has raised the OCR over the last few years, which initially did raise interest rates a little. But they have now drop back down to what they used to before the OCR rise.

Adjusting the OCR is the blunt tool used by RBNZ to control inflation, with the impact of reduced fuel prices ATM in particular, they have no choice but to hold or lower the OCR. Inflation is presently running at <1%. There's a secondary reason - to keep the exchange rate low - they aren't supposed to "meddle" in this, but do in various ways anyway.
The RB have correctly identified the risk to the entire economy from the ridiculous housing bubble. The LVR rules implemented last year have been an abject failure from an overall POV - they don't seem to have reduced overall housing demand. From a social POV, also an abject failure, as the already wealthy are not even slightly hindered by the LVR guidelines, which has further disadvantaged first-home buyers in a market where raising the required minimum deposit becomes impossible for many. NZ home ownership rates have been declining since the 80s. I don't think that's good for our society, but YMMV.

As far as the amount people are prepared to borrow goes, that's partly dependent on interest rates. Yes - people look at affordability of meeting payments short-term, and expect interest rates to remain the same (when the average mortgage rate in NZ since 1964 has been 10-11%) and that in any case, property price inflation will continue at better than double the inflation rate indefinitely - reducing their debt as a multiple of income / increasing their % equity in their homes.

One day something will break. Before that happens, expect the RBNZ to pull some other tricks (other than LVR controls) out of the hat.

Geektastic

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#1231393 4-Feb-2015 21:55

Fred99:
mattwnz:
wasabi2k:
nzkiwiman: I don't own a house, and have never chased a mortgage
Just wondering why all these banks are now giving you $1-2-3k for taking out the mortgage. I assume that you can't turn around the use that money as a payment - they probably expect you to spend it on something you don't need.

Because people are, in general, stupendously shortsighted and material-minded.

Case in point - take out a mortgage and get a "free" iPhone 6!!!

Alternative - replace the iPhone 6 with cash and make a payment reducing the principal you are paying back immediately.

Over the course of a 30 year mortgage that $1200 reduction in principal would have saved you more money ($2590 in 2015 dollars on a 500,000, 6%, 30 year mortgage). Your iPhone 6 will be a worthless piece of scrap somewhere.

Same with similar deals with TVs, Playstations etc.

If the bank is offering you free stuff - they will be making money out of you. You should turn that into an opportunity to reduce the overall cost of your borrowing as much as possible - not to get gadgets. By taking the device the bank wins again - they sure as heck aren't paying retail for that stuff.

Totally agree. The problem in NZ is that people borrow as much as they can afford, which is why when interest rates drop, house prices rise, as people can afford to borrow more. So in short supply, the house goes to the person prepared to pay the most for it. The case in point is the Auckland market. Also having two wage earners in a family also means that people can afford to pay more for a house than they traditionally used to.

One thing I don't really understand is that the reserve bank has raised the OCR over the last few years, which initially did raise interest rates a little. But they have now drop back down to what they used to before the OCR rise.

Adjusting the OCR is the blunt tool used by RBNZ to control inflation, with the impact of reduced fuel prices ATM in particular, they have no choice but to hold or lower the OCR. Inflation is presently running at <1%. There's a secondary reason - to keep the exchange rate low - they aren't supposed to "meddle" in this, but do in various ways anyway.
The RB have correctly identified the risk to the entire economy from the ridiculous housing bubble. The LVR rules implemented last year have been an abject failure from an overall POV - they don't seem to have reduced overall housing demand. From a social POV, also an abject failure, as the already wealthy are not even slightly hindered by the LVR guidelines, which has further disadvantaged first-home buyers in a market where raising the required minimum deposit becomes impossible for many. NZ home ownership rates have been declining since the 80s. I don't think that's good for our society, but YMMV.

As far as the amount people are prepared to borrow goes, that's partly dependent on interest rates. Yes - people look at affordability of meeting payments short-term, and expect interest rates to remain the same (when the average mortgage rate in NZ since 1964 has been 10-11%) and that in any case, property price inflation will continue at better than double the inflation rate indefinitely - reducing their debt as a multiple of income / increasing their % equity in their homes.

One day something will break. Before that happens, expect the RBNZ to pull some other tricks (other than LVR controls) out of the hat.

You don't really have to be wealthy not to be disadvantaged by the LTV rules, you just need 20% deposit.

We really do need to build more houses in a hurry to swamp the supply side, but this cannot happen with NZ builders plodding on at the rate they seem to. Fletchers et al are finally grasping that large developments of 200-300 houses where they mix 3 or 4 basic designs and tweek the finishings etc for individuals is an answer but it has been a bit slow in coming.

Fred99

13684 posts

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#1231489 5-Feb-2015 08:36

Geektastic:

We really do need to build more houses in a hurry to swamp the supply side, but this cannot happen with NZ builders plodding on at the rate they seem to. Fletchers et al are finally grasping that large developments of 200-300 houses where they mix 3 or 4 basic designs and tweek the finishings etc for individuals is an answer but it has been a bit slow in coming.

Like these (modular design):
http://matrixhomes.co.nz/

Part of the problem is also that there's a mentality/mindset that because homes prices have increased in value at well over the the rate of inflation for decades, then they will continue to do so indefinitely (mathematical impossibility) - so you may as well "invest" as much as possible to maximise your potential "return".

timmmay

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#1231494 5-Feb-2015 08:38

I've never paid published mortgage rates. A bit of negotiation tends to get you 0.1 - 0.5% discounts, especially if you're above the 20% LVR and considered a good customer.

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Jase2985

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#1231510 5-Feb-2015 09:22

you should be able to get at least .25% on fixed and .5% on floating/flexi (think i got that round the right way having trouble remembering) as thats what the banks offer some of their bigger customers and their employees, with out batting an eyelid. Bank staff also get better deals than that.

We get a package discount through my employer, no credit card fees, no bank fees, and the above discount off their standard rates. I could and probably should press for more.

Something like this
https://comms.anz.co.nz/bankingpackage/index.html

Geektastic

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#1231554 5-Feb-2015 10:10

Fred99:
Geektastic:

We really do need to build more houses in a hurry to swamp the supply side, but this cannot happen with NZ builders plodding on at the rate they seem to. Fletchers et al are finally grasping that large developments of 200-300 houses where they mix 3 or 4 basic designs and tweek the finishings etc for individuals is an answer but it has been a bit slow in coming.

Like these (modular design):
http://matrixhomes.co.nz/

Part of the problem is also that there's a mentality/mindset that because homes prices have increased in value at well over the the rate of inflation for decades, then they will continue to do so indefinitely (mathematical impossibility) - so you may as well "invest" as much as possible to maximise your potential "return".

It is however true that over time house prices have never declined. They may fall in the short term but if you graph it for periods of 100 year blocks then up is the only way they go. It is not unique to NZ it seems to be the case everywhere comparable to NZ too.

Geektastic

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#1231567 5-Feb-2015 10:17

Fred99:
Geektastic:

We really do need to build more houses in a hurry to swamp the supply side, but this cannot happen with NZ builders plodding on at the rate they seem to. Fletchers et al are finally grasping that large developments of 200-300 houses where they mix 3 or 4 basic designs and tweek the finishings etc for individuals is an answer but it has been a bit slow in coming.

Like these (modular design):
http://matrixhomes.co.nz/

Part of the problem is also that there's a mentality/mindset that because homes prices have increased in value at well over the the rate of inflation for decades, then they will continue to do so indefinitely (mathematical impossibility) - so you may as well "invest" as much as possible to maximise your potential "return".

Yes like that. A 140 sq m house with all the upgrades is only $240k. Add $200k for a site and that is not too bad.

nickt

90 posts

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#1231654 5-Feb-2015 11:56

What about legal fees for switching banks ? I've heard the offer often covers adding the bank to the title, but what removing the existing bank ? Do y'all bother with that ?

wasabi2k

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#1231656 5-Feb-2015 11:58

nickt: What about legal fees for switching banks ? I've heard the offer often covers adding the bank to the title, but what removing the existing bank ? Do y'all bother with that ?

Depends entirely on the bank as to what they offer - just ask.

tchart

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#1231718 5-Feb-2015 13:11

wasabi2k:
nickt: What about legal fees for switching banks ? I've heard the offer often covers adding the bank to the title, but what removing the existing bank ? Do y'all bother with that ?

Depends entirely on the bank as to what they offer - just ask.

When I switched to ASB they paid the transfer/legal fees. That was 3 years ago though.

Oldmanakbar

110 posts

Master Geek

#1231831 5-Feb-2015 17:11

nickt: What about legal fees for switching banks ? I've heard the offer often covers adding the bank to the title, but what removing the existing bank ? Do y'all bother with that ?

A lot of the banks give you the $2000-$3000 cash with the assumption being that you will use probably half of it to pay your legal fees.
Most of the time if you have say a $250k mortgage and move to another bank, it is considered new lending so they will give you the cash bonus which will cover the transition fees and then some.

Moving banks (assuming you are not paying break fees) should always end up with you being better off in the pocket than you were before. They want your money, and you are paying them a ton more than the pittance of cash they are throwing at you.

Handle9

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#1231838 5-Feb-2015 17:33

nickt: What about legal fees for switching banks ? I've heard the offer often covers adding the bank to the title, but what removing the existing bank ? Do y'all bother with that ?

Depends on the bank. Kiwibank will do it for you, they are the only one I'm aware of. For everyone else you need to do it however they do give you cash to make it worth your while.

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