Borrowing from experience

How to get a mortgage that suits you 

It was 1981 when I purchased my first home for $42,000, with a little help from family and a mortgage of $28,000. This was a huge commitment for me.

The deposit was pretty much the minimum I could get away with and the amount I borrowed was pretty much the maximum I could get against my income. Even then, it was a struggle. I worked for a bank so if I hadn't had a supportive bank manager the transaction may never have happened. Oh, how times have changed.

Let's look at the options available today for first-home buying. Watch this space because these options change almost at the same pace as the price of houses.

Now there's a statement. It is no secret that the cost of housing makes it increasingly difficult for the first-time buyer. What hasn't changed is the amount of money that first-home buyers can accumulate. The $14,000 that I had to contribute towards my first home is still an amount that many first-home buyers have to contribute today. What has changed is that the purchase price of the property has probably increased from $42,000 to around $350,000.

Another thing that hasn't changed is the number of people willing to provide advice. Listen to them, but be aware that their advice is often based on their experience, which may not be relevant to you.

There are only two things that affect the cost of a mortgage - the interest rate you pay, and the speed at which you repay your mortgage. All the options define different ways of achieving that, so don't be confused. The key is to find the options which best fit your circumstances. If your bank or your broker is not taking the time to establish those, it is time for a change.

What are the options available to first-home buyers? It's not long ago that they had to demonstrate that they had saved a minimum 5 per cent deposit if they wanted to get a home loan. Even then they were faced with restrictions in relation to bank lending criteria and increased costs that didn't apply to buyers with a larger deposit. These restrictions generally still apply but vary from bank to bank, so it pays to shop around.

An NZMBA-accredited mortgage broker will have this information at their fingertips and is, as a general rule, paid by the lender for the service they provide.

More recently some lenders have introduced what is termed a 90/10 deal. This is where you borrow 90 per cent of the value of your new home from them and borrow 10 per cent by way of a second mortgage from an alternative provider. The second mortgage is naturally at a higher interest rate and there are now some very reputable niche players who are specialising in this area. The 10 per cent can also be gifted to you by a family member, for example.

The 90/10 product has been introduced partly in response to the increased cost of housing but it also reflects the stress placed on young people who have strong loan repayment ability but, for instance, do not have the ability to save for their first home while paying rent and repaying student loans. It is a viable alternative for those with strong income streams and no deposit.

If you are thinking of buying your first home and would like some impartial advice , talk to an NZMBA-accredited mortgage broker. 



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