Is it worth refixing at a lower rate?

In this newsletter

There are some unbelievable rates being offered by the banks and we are receiving lots of enquiries from clients about breaking their existing rates so they can refix at these lower, previously unheard of rates.

As an example, a quote for the break cost for a loan of $427,000 currently on 3.85% fixed until July 2021 was $5445. The difference in the rate was 0.86% which, based on interest-only over the 14 months of the remaining term would be a saving of $4284 approx which is less than breaking the existing loan and refixing.

The way the banks work out these costs (they all have different formulas) is to compare your rate with the wholesale rates and work out how much they will lose if they let you refix. The reality is that they cannot “sell’ those funds at the rate you are currently paying.

The lower the advertised rates go, the higher the break cost

Do you need to lower your costs or need a top-up? Please contact us for options

Do the lower interest rates make it easier to borrow?

Low rates don’t mean it is easier to borrow since the lenders still work the numbers on a rate that is more than double what you will actually pay on a mortgage. They do this because of the responsible lending code which means they are looking after the client long term, to make sure they client can service the loan at a higher rate if the rates go back up at some stage.

LVR levels

90% first home finance is now available once again through some of the lenders.

Do be aware that there is a margin added to the rate of you are borrowing over 80% and another rate for over 85% borrowing.

1st home purchasers can use their Kiwisaver and a first home buyers contribution of $5k each for existing homes ($10k for new builds) may be available as well. Please check with us if you qualify.

Banks are starting to take ‘new to bank’ customers again. For a little while they would only work with clients who had their income being direct credited to the bank but that criteria is easing up again.

Information now required for lending applications

As a result of COVID 19 the lenders are all asking more questions. They know that certain sectors like hospitality, tourism, and retail have been hit hard but the full impact is yet to be realised.

Questions for wage earners

  • How has your income been impacted?
  • Is there likely to be a future impact?
  • Have you been advised by your employer of potential downsizing or redundancies?
  • Commissions, overtime, bonuses are all types of income that will need to be strongly justified if they are required to service a loan
  • Is overtime part of your normal role, in your contract?
  • Are you working in essential services?

Questions for self-employed borrowers

  • Significantly more information and documents required to prove serviceability
  • Financials up to 31 March 2020 but since these will reflect income pre C19 they won’t reflect the new environment
  • Business bank statements, contracts and commentary around your expected short, medium and long term cash flow position will be necessary to support serviceability requirements and critical to support an application

Investment income

  • Property investment income needs to be confirmed through bank statements and /or rental statements from the property management company or your own statements if self -managing. This is to show the rental income hasn’t been affected.

Security property

  • The lenders will look more closely at the location e.g. Queenstown has been hit hard through the lack of tourism so please research the location thoroughly.

Refinancing

  • We need to ensure that there is a financial benefit for you to refinance since there are costs involved.

As we move along and life settles down (as it will eventually) the lending market will change along with it but for the moment there is no such thing as an easy mortgage application unless you have strong income and not been affected.
Let us make the process as simple as possible by providing you the right questions

Small Business Finance

If your business needs some financial help then we have some good options to help you get back on your feet. A lump sum of between $5,000 and $300,000 available- subject to lending criteria but not the same as the mainstream banks. Fixed daily or weekly repayments.

Example of a recent loan
Time in Business – 11 years
Use of funds – funds to support working capital
Loan type – Small business loan
Loan amount – $71,750
Loan term – 12 months
Turnaround – same day approval

Want to know more? Give us a call

Disclaimer

The newsletter contains information about property related matters including finance. The information is not advice and should not be treated as such, it is purely for educational purposes only and is based on the opinions of the authors. The authors are unable to accept any liability or responsibility whatsoever for any error or omission in respect of any special, indirect or consequential loss or damage of any kind sustained by any person or entity arising from the use of this information.

We recommend interested parties should independently satisfy themselves as to the accuracy and correctness of the information found within this newsletter.

Without prejudice to the generality of the foregoing paragraph, we do not represent, warrant, undertake or guarantee that the information in the newsletter is correct, accurate, complete or non-misleading.