Borrowing and mortgages | Stuff.co.nz
Posted on 08. Jul, 2010 by admin in Finance
Don’t you find the word mortgage interesting? Mort, derived from Latin for death. This should be a clue as to the nature of mortgages. They consume life. Debt consumes life.
When it comes to your own housing however and the choices between owning and renting, it is inevitable that each of us at some time will face death in the form of a debt and a mortgage.
Assuming you have now found a home you can afford, you have a contract, and you are now preparing to settle and you are out mortgage shopping, this blog aims to cover some of the issues you should consider.
For your first mortgage it pays to shop around. The housing mortgage market is highly competitive and the banks will cut each others throats and/or balls off to win business. This is less so the case today due to the credit crunch, but it is still a feature of the home lending market.
As a first port of call, start with the bank that you have been with for the longest, the one that can see your savings history and currently has your deposit sitting there earning interest.
You might be able to afford to service say 90 percent borrowing, but attaining that level of lending in this market will be hard. The absolute maximum appears to be 85 percent and banks are more comfortable with 75 percent.
The more you need, the harder the sell, and thus your existing bank is the easiest candidate. If you fail with your existing bank, likely you will fail everywhere, but the next port of call is a mortgage broker. These in effect cost you nothing because ‘the bank pays’. Don’t be silly now, banks never pay, customers pay, eventually.
If you are a strong borrower and you are seeking 75 percent or less lending, start with your own bank, but price check them with the other four. As often as not your bank will not be offering the sharpest deal, in fact four out of five times they won’t be. In short, banks compete for lending on price and they move up and down against each other at random.
The one bank that seems to habitually not play in this game and is almost never the cheapest is the National Bank. In the past there were other good reasons to bank National however those soft values that made the National Bank attractive have decayed since the ANZ bought the National Bank. Perversely the ANZ has got better, call it a culture merge.
Once you have found the cheapest price go back to your bank and offer them the opportunity to match terms, sometimes they will, mostly they won’t. If they don’t, change all your banking to the new bank EXCEPT and this is important, leave your credit cards with the old bank and have one low cost transactional account with the old bank – you never know when you will need a bolt hole. This is, of course, assuming you have a credit card, which you should not have unless you have learned how to use it and clear it every month.
When you have a credit card, and a mortgage with the same bank your credit card debt is secured against your home. If the mortgage is with a different bank, the credit card is unsecured. If you go to your bank for an extension of your mortgage, they will add up all your debts to determine how much money they can lend you, this arithmetical exercise will include your credit cards.
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