Adviser shares strategies for borrowers to stay ahead
Despite the doom and gloom of the housing market and higher interest rates, an Auckland mortgage adviser is reminding Kiwis to focus on the positive.
ILG Mortgages adviser and self-confessed “Smarter Mortgage Lady” Rachael Thompson (pictured above) told NZ Adviser that when speaking with her clients, she tells them not to worry about things they can’t control such as inflation and interest rate rises, but to concentrate on things they can control such as their budget and mortgage structure (with the help of a mortgage adviser).
“Keep it simple by looking at the information in front of you and decide if you do want to buy a property, can you afford the mortgage repayments, will a bank lend to me and if so, do I want to go ahead with this purchase,” Thompson said.
“It is important to think about this now rather than after you are committed to a mortgage. Think about your circumstances now and what they might be in one year, five years, 10 years from now.”
Thompson has come up with five strategies for mortgage advisers to help their clients through the current tough lending climate:
The importance of loan structure
Thompson said loan structure was more important than ever in the current climate, so she advised her clients to “spread the risk” and fix their loan across different terms which provides some peace of mind.
“If an interest rate goes up and only a portion of your mortgage is coming off, you don’t have to worry about a new (chances are much higher) interest rate for your full mortgage, rather than just a portion of it,” she said.
“This provides certainty of cost and you can manage to refix or float a portion of your mortgage rather than it all than once.”
Thompson said as lenders were increasing their home loan rates and there was speculation about future interest rate rises in 2023. This meant some clients who had a portion of their home loan expiring next year might not be able to afford to “wait and see” what happens.
“I am seeing a trend of clients breaking their existing agreement with their lender now and refixing for another year and receiving a cashback incentive, rather than waiting for the loan to expire and see where interest rates are at the time,” she said.
“By reviewing the costs of breaking now versus the benefits of refinancing for a longer term now is something I have been talking to people about now. It is all about looking for a longer period of certainty around a client’s loan structure.”
Offsetting your mortgage with surplus cash
Thompson said she comes across many people with surplus cash sitting in the bank for a rainy day, however by choosing to offset these funds and using them to apply a portion towards their fixed loan would save them thousands of dollars in the long-term.
“This is a savvy way of using money that would be potentially earning less sitting in a savings account, turn it around and makes your money work for you and not against you,” she said. “My advice is remove the emotion from your mortgage and start treating it like a business by taking control of it.”
Overpay your mortgage whilst on a low interest rate
Thompson said she advised her clients who had snapped up a low fixed interest rate during the last few years to overpay their mortgage now if they could.
“Overpaying your mortgage not only reduces your loan term and but also your loan balance,” she said.
“Whether that is making a lump sum payment or increasing the frequency of your payments, by the time your current low rate comes off and moves to a higher rate, it will not be as a massive shock and will have a lesser impact on your monthly payment. Advisers should be reviewing the difference between their clients’ current repayments on a lower rate and what their potential new repayments will be.”
Consider purchasing with somebody else
Thompson said people wanting to purchasing property in the current market should consider buying with a friend or family member.
“Buying a property jointly shares the financial load. In the current market conditions, not many people would be able to buy a big, beautiful home to live in all by themselves, so consider buying with someone you know and trust, or introduce a flatmate or two if you have the room.”
Use pre-approval now while market is soft
Thompson said New Zealanders who had secured loan pre-approval should consider buying now in the current market.
“Property prices are softening, so they will be able to buy their new home at a lower price,” she said.
“I remind my clients with pre-approvals yet to purchase that if there are changes to interest rates, it only affects them when their pre-approved loan becomes unconditional. The interest rate is irrelevant because it will not be locked in until the loan begins. As lenders are lifting test rates, it means those with pre-approvals expiring soon that need renewing will likely qualify for a lower money amount – the loan term remains the same, but as interest rates have increased, banks will lend less money.”
