Did you realise that if you borrowed $300,000 for your mortgage, that you will pay a total of $526,131? Here’s 3 ways you can reduce this cost:
1. NEGOTIATE your mortgage interest rate
There is a LOT of room for banks to move on the mortgage interest rate they are offering you. Here’s what you need to know about bank profit margins:
Banks themselves borrow heavily in order to provide you with your home loan. The source of these funds usually comes from Europe, and banks can borrow for 12 months from as little as EUR 0.8847% (LIBOR rates) at today’s exchange rate that works out at about 0.146% NZ.
In New Zealand, currently, the cheapest advertised 1 year rate for a mortgage is 4.35%.
So the difference between these two rates is 4.204%.
By the way, that 4.35% rate applies if you have a 20% deposit. If you don’t, then you will pay more, either by way of a Low Equity Premium of between 0.5-1.5% or a Lenders Mortgage Insurance Fee, which can be thousands.
Ok, so the banks then need to cover their costs, staff, lights computers etc., and take out some currency protection, so let’s allow an extra 1% to cover these expenses. The profit margin is then 3.204%
So you can see that there is room to negotiate with your bank, but... HOW?
In order to be in a position to negotiate with your bank on your mortgage, you need to have some approvals from other banks, so that you can say to your personal banker, “I’ve been offered this rate by another bank - do better or I’m going to move my business elsewhere”
There’s a saying in banking, “it is 7x more expensive to gain a new customer than it is to keep an existing customer.”
So the bank will want to retain your business, as they have also probably convinced you to have all of your accounts there, credit cards, overdrafts, insurances and KiwiSaver. So they would probably lose all of that business.
The problem with getting yourself a few extra approvals from other banks is it will take you time. Time to leave work, drive to the bank, good luck finding a carpark, have a 1.5-2 hour meeting, wait a few days to get the result of your application, drive back to work, rinse and repeat 6 times to get multiple mortgage offers from various banks.
You’ve now clocked up about 9-12 hours of your time. More than whole day off work! Who wants to take annual leave for that - or worse, UNPAID LEAVE?!
As independent mortgage brokers, we can help by doing all of this leg work for you - and presenting you with the very best options for your situation.
2. Structure your mortgage to suit your financial situation
Don’t just take the default 25 or 30 year mortgage option just because it’s easier and reduces the repayments.
Understand your financial circumstances, and find out how much you can afford to pay on your mortgage, then match the mortgage term up with what you can afford. Match the mortgage repayment dates up with the frequency you get paid. For people on fixed incomes, it is advisable to make weekly or fortnightly repayments rather than monthly.
If you receive bonuses or any other irregular income, other home loan structure options become available that can save you even more in interest costs and time.
3. Keep your regular mortgage repayments relevant to your financial situation - Review!
If your income increases from a pay increase, make sure you increase your mortgage repayments every year too.
BNZ’s current “Shred your Mortgage” Campaign involves their Tailored Home Loan, where the repayment increases automatically every year, so you don’t have to think about it.
By using WealthHealth as your mortgage broker, we can come to you after work, or on the weekend when you have time to look into these things, you won’t have to take time off work! AND you’ll only need to go through the information once, not 6 times!
We will negotiate with the banks on your behalf, and get the best offers for your business, which also means contributions towards your switching costs.
This will save you from having to approach multiple banks yourself, taking time off work, finding a carpark, spend the best part of 12 hours across all banks, going over the same information at least 6 times with different people.
This negotiation is a free service to you, can save you thousands of dollars in interest, hours of your own time, help you to be debt free sooner and possibly retire early!! How cool does that sound?
We will provide you with the advice you need regarding the structure of your mortgage, so you can pay the mortgage off as quickly as possible.
This will Save.You. Money and get that home loan paid off earlier!
We will also provide you with a free financial plan from a Certified Financial Planner. A financial plan will provide you with a roadmap, and advice to achieve your financial goals, valued at $500.