Buying a home is a significant investment, and for most people, it requires taking out a home loan. Home loans in New Zealand can be a confusing process, especially for first-time home buyers. In this article, we will guide you through the process of getting your first home loan, getting an investment property home loan, refinancing, and refixing.
Getting Your First Home Loan
Buying your first home is an exciting but daunting experience, and is often the biggest debt most people will ever take on. Getting a home loan for the first time can be a complex process, but it doesn’t have to be overwhelming. There are several things you need to know to make the process easier.
Firstly, it’s essential to have a good credit score. Lenders in New Zealand will check your credit score to determine if you’re eligible for a home loan. A good credit score can increase your chances of getting approved and also help you get a lower interest rate. To get a good credit score, make sure you pay your bills on time and manage your accounts well.
Secondly, you need to save up for a deposit. Most lenders in New Zealand require a deposit of at least 20% of the home’s purchase price. However, some lenders may offer home loans with a lower deposit requirement, as low as even 5% to 10% for special scenarios (often reserved for first home buyers).
Thirdly, you need to decide what type of home loan you want. There are two main types of home loans in New Zealand: fixed-rate and variable rate home loans. A fixed-rate home loan means that your interest rate remains the same for a set period, while a variable rate home loan means that your interest rate can change. For example, if you were to ‘lock in’ a rate of 6%p.a. for 2 years, that means your home loan is fixed at 6% interest for 2 years, and before the time period of 2 years is up, you will have to ‘lock in’ a new rate of whatever is being offered by a lender at the time.
Investment Property Home Loans
Investing in property can be an excellent way to build wealth in New Zealand, and is one of the key ways to build your empire. Buying an investment property requires a different type of home loan, while this is still under fixed-rate and variable-rate, you may have a little more flexibility depending on your circumstances. Investment property home loans are designed for people who want to buy a property and rent it out to tenants.
The deposit required for an investment property home loan is usually higher than for a ‘standard home loan’ of 20%. Lenders in New Zealand may require a deposit of up to 40% of the purchase price because investment properties are considered riskier than owner-occupied properties. Note that the interest rate may be higher for an investment property vs. a owner-occupied property due to the lender wanting to mitigate risks.
Refinancing a Home Loan
Refinancing a home loan is the process of switching your home loan from one lender to another. Refinancing can help you save money on your home loan by getting a lower interest rate or changing your loan terms. Here are some reasons why you might consider refinancing your home loan:
- Get a better or lower interest rate: If interest rates have dropped since you took out your home loan, you may be able to get a lower interest rate by refinancing.
- Change your loan terms: Refinancing can allow you to change the length of your loan, switch from a fixed-rate to a variable rate home loan, or even consolidate multiple loans into one.
- Access equity: If your home has increased in value since you took out your home loan, you may be able to access the equity in your home by refinancing.
Refixing a Home Loan
Refixing is the process of renewing your fixed-rate home loan when the current fixed term is about to expire – as we mentioned above in the Getting Your First Home Loan section. When you take out a fixed-rate home loan, you agree to a set interest rate for a fixed period. When that period is up, you can choose to refix your home loan for another fixed term or switch to a variable rate home loan.
Some reasons why you might consider refixing your home loan:
- Avoid interest rate fluctuations: If you want to avoid the risk of interest rate fluctuations, you may want to refix your home loan, it’s often ‘safer’ and easier to deal with – especially for people on a budget!
- Budget more effectively: Refixing your home loan can help you budget more effectively because you’ll know exactly how much your repayments will be for the next fixed term. With the ever-rising cost of living, having a good budget is paramount to financial wellbeing.
- Take advantage of lower interest rates: If interest rates have dropped since you took out your fixed-rate home loan, you may be able to get a lower interest rate by refixing your home loan. Sometimes this can cost a ‘break-fee’, which is an amount provided to you by the lender. If this is you – please chat to your mortgage broker or financial adviser as they will give you fees and advice.
- Switch to a different fixed term: Refixing your home loan allows you to choose a different fixed term, such as a shorter or longer term, depending on your financial goals. This is particularly helpful when you’re looking at making some big changes to your life, like having a baby!
When considering refixing your home loan, it’s important to compare different lenders interest rates and terms to ensure you’re getting the best deal. You can use online mortgage calculators to help you compare different home loan options, or come and chat to one of us.
Getting a home loan in New Zealand can be a complex process, but with the right information and guidance, it doesn’t have to be overwhelming. Whether you’re getting your first home loan, investing in property, refinancing, or refixing your home loan, it’s important to understand your options and compare different lenders interest rates and terms.
Do your research and seek professional advice from a mortgage broker or financial adviser. With the right support and knowledge, you can make an informed decision and find a home loan that suits your financial needs and goals.