Annual Accounts

Think Before You Borrow

Buying a home and getting a mortgage is often the most important financial decision that we make in our lives. We take considerable time researching and deciding on the right home to buy, but spend little time and effort researching the most suitable home loan.

In New Zealand, there are literally hundreds of home loan products available, each with its own advantages and disadvantages. Interest rates is only one factor to consider as your own personal situation also has a huge impact.

Some of the factors to consider are:

1. How long do you plan to live in this property? If you may be selling in three years, you wouldn’t fix your mortgage for four years. The length of time you plan to stay in the property can affect the term of your mortgage.

2. Will the property need some improvements that you may have to save for or borrow for in the future? If you need to borrow for this, then you should ensure your lender will provide additional funding.

3.  Is this property to be owner occupied or an investment? Investment properties have special tax deductibility so loan structuring is different than if it is your home.

4. Do you have job security when making this commitment and if you have a change of employment, what affect would this have on your loan? You may need to ensure your mortgage has flexibility for reduced repayments or loan repayment holidays.

5. Are you likely to receive a lump sum such as a bonus or inheritance in the near future? If this is likely, ensure part of your mortgage is on a floating rate to avoid penalties for extra repayments.

6. If the loan has been approved on two incomes, can you manage to sustain your loan repayments if your circumstances change? Some loans enable you to lower your payments in such situations while others may not allow this flexibility without incurring a penalty.

7. If you take a lower interest rate now, and rates rise in the future, how will this affect you? You should factor in what your repayments may be if interest rates increase.

8. Does fixing your home loan give you the flexibility that you require or would a split loan work better for you? It may pay to have the stability of a fixed rate but the flexibility of part of your loan being on floating.

These are just some of the factors that Mortgage Link feel could impact on your financial position and the requirements when structuring your mortgage. It is important that you discuss your situation with your advisor so that you make the correct decisions about your mortgage.

Annual Accounts

Interest Rates Overview 12/07/2012

If I Were A Borrower What Would I Do?

Tony Alexander, Chief Economist at BNZ, his thoughts are:

I would fix for three years because I am cautious and would like something to be certain in these increasingly uncertain times. However, I also think floating is just fine given that the chances of the Reserve Bank tightening monetary policy in the next two years are not particulary large.

So if you choose to stay floating I think you will enjoy low rates for quite a long time. But remember that you get no rate certainty, and if your strategy is to float then one day fix you run the risk of things suddenly brightening offshore and those fixed rates bumping up before you can lock one in. And for the record, the experience of the past three years proves that none of us can pick when fixed rates will undergo their structural shift highter.

Annual Accounts

Modern vs Future Accounting Practices

The days of single accounting solutions are over. Accountants should look at the best technology and solutions for their clients, even if it means being familiar with multiple accounting and total business solutions. Marc Lehmann from SAASU sums this up great in his blog Modern Practices or Future Practices.