Four mortgage questions and their answers

If you're hoping to buy a house soon, you need to make sure you're financially stable first. Photo / Doug Sherring

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The Herald's Cooking the Books personal finance podcast is here to get you the tips you need to weather the financial storm. Hosted by Frances Cook, with a new money expert featured on each episode.

Like everything else right now, the world of property ownership and mortgages is changing rapidly.

It's unnerving many of us, with the newest ASB Housing Confidence Survey showing confidence at a near eight-year low.

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The numbers of people expecting house prices to rise has crashed since last time, from 54 per cent to just 14. A slim majority of New Zealanders think it's a bad time to buy a house.

But of course, first home buyers hear rumours of house prices going down and get their hopes up.

That's helped by the fact that mortgage rates are outrageously low right now; all the major banks have an offering under three per cent.

With all of this flying around, questions have been hammering my inbox, asking what it means for the average person.

I brought in Mortgage Lab CEO Rupert Gough for the latest Cooking the Books podcast, so that we could work through the most common questions.

How can I get the cheapest mortgage rate?

Many of the banks are offering record low rates of all the way down to 2.69 per cent.

When they're already so low, it's unlikely you can persuade them to go lower for you (although it's worth asking). Your best bet is to check the major banks for the best rates, then ask your bank to match it.

Gough says you then have an opportunity to shave years off your mortgage.

If you lock in a new lower rate, but keeping paying the amount you were before, you'll be attacking your mortgage much faster without feeling like you're sacrificing anything.

"The calculation we use, which is admittedly rough, and depends on how much you pay over 30 years. But if you pay an extra $1000 off your 30-year mortgage, you can save about $5000 in interest over the term of the mortgage," Gough said.

"So five times whatever extra you pay in over a 30-year mortgage. That's a substantial benefit."

Am I in trouble if house prices go down?

This is where we say thank you to the former LVR restrictions, as they mean most people will have some cushion to stop the worst-case scenario.

Equity is how much you own of your current home, so if you put $100,000 into a $500,000 home, you would have 20 per cent equity.

Many economists are predicting there will be a fall in house prices over the next few months, with predictions ranging from five per cent, to 15 per cent.

It doesn't sound great, but it does mean it's highly unlikely that the average person will have the house value fall so low that they end up owing more to the bank than it's worth.

Gough said many people could get through a lower market by simply sitting tight, but if you need to sell, you still have options.

"There are two answers really, which are; try to pay down your mortgage as quickly as you can, or renovate your house so that it's more valuable.

"Something to remember is that if your suburb has gone down by, say, 10 per cent, that doesn't necessarily reflect your house, which might have an amazing view, or nicely landscaped garden, or be perfect for first-home buyers so open to more of the market."

Do the LVR changes mean I can now buy a house with lower deposit ?

Probably not. Even though the banks technically can give you a bigger loan with less money from you, they don't have to, and they're not likely to want to.

Really, the LVR rules were removed to give the banks more breathing room while the economy takes a turn for the worse. If house prices dip, then the amount you owe the bank stays the same, and the lost value comes out of your deposit.

That means as things are recalculated, the bank could accidentally end up in trouble, because you now only own 10 per cent of your house instead of 20.

Removing the LVR rules means they don't get branded an irresponsible lender just because a virus came out of nowhere.

Banks have good reason to be cautious, as many are losing jobs, and in a rocky economy you don't want to give someone a loan they can't afford to keep servicing .

What's worse than not buying a home? Having your home sold off in a mortgagee sale.

But first-home buyers, please don't despair. If your job is stable, you could still be in a good position to buy a house. And the LVR changes do mean you have more options for shopping around on banks.

"Previously, if you banked with Bank A, they were likely to consider you for high LVR lending. But Bank B and C would look after their own clients first.

"So even if you were a good candidate, they weren't as happy to lend to [new customers].

"But now if you're a good candidate, if you have good income, maybe a 10 per cent deposit, you can consider other banks because they're not restricting it to just their customers."

If you have an investment property, what do you do if renters struggle to pay the rent?

This will be an increasing problem as people face pay cuts, or lose their jobs.

It's worth doing what you can to hold on to a good tenant – you might consider reducing rent payments, or pausing them. Replacing a tenant takes time, can be expensive, and you might have to list the property at a lower rate anyway.

So it's worth figuring out how you can get through this together.

Gough said you need to be having open conversations with both your tenant and the bank, to make sure you don't have money going out when there's none coming in.

"The hardship help that banks came up with, in terms of mortgage deferrals, and interest-only payment schedules, is extended to investment property owners.

"So if you can prove that you aren't getting the tenancy payments because your tenants are going through a Covid hardship, then you could talk to the bank about applying for one of those."

Listen to the full interview on the Cooking the Books podcast. You can find new episodes on Herald Premium, or subscribe on iHeartRadio, Apple podcasts app, or Spotify, or wherever you get your podcasts.

If you have a question about this podcast, or question you'd like answered in the next one, come and talk to me about it. I'm on Facebook here, Instagram here and Twitter here.