Securing a mortgage in NZ means wading through often unfamiliar terminology and a lot of paperwork. Generally, a home loan is one of the biggest commitments you take on in your life. Understanding what you're signing is essential to meeting your obligations and not getting caught out further down the line by something you didn't understand.
Here are 6 key terms from your NZ mortgage paperwork explained.
If you fall behind on your mortgage payments then you owe the lender the amounts you've missed against your repayment schedule. The mortgage goes into arrears by this amount.
Loan providers require security when lending out money in case the borrower defaults on paying back their loan.
For a mortgage, they will hold the real estate being purchased as an asset against the loan. If you stop making repayments and cannot pay off your mortgage, they are legally able to sell the property and from the balance of the sale recoup the amount left on your loan.
3. Application, establishment and break fees
Banks and lenders can charge certain fees around home loans. When first applying for a mortgage your application is assessed by the lender, and they charge an application fee to do this.
Occasionally, but more rarely, the lender will also have an establishment fee that is for setting up the loan once you've chosen them for your mortgage.
Break fees, or early repayment costs, only occur if you choose to break a fixed-rate loan before the end of your repayment period. This is the lenders way of recouping any losses the early break causes, or the interest they've missed out on. The fee is calculated at the time you choose to make an early repayment of your fixed-rate loan.
4. Loan to Value Ratio (LVR)
The LVR is based on how much you borrow versus the value of the property you're buying. For example, if you're taking out a mortgage of $800,000 for a house valued at $1,000,000, your LVR is 80 per cent.
Occasionally, depending on the lender and situation, you'll need to find someone to provide a guarantee. This person will commit to covering either the full principal balance, or a portion of it, should you default in your mortgage payments. In short, they are obliged to pay if you can't.
6. Low equity fee
If your mortgage application is accepted with less than a 20 per cent deposit the lender will usually charge you a one off fee at the beginning of the loan for the extra risk they are taking on.
If you'd like to know more about mortgage terminology and how to find the right home loan for your needs, talk to Money Empire today. Our aim is to make sure you're comfortable and confident with the mortgage you're securing.