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Money, money, money: What to ask a lender when you want a mortgage

Buyers  |  20 December 2018  | By the settled.govt.nz team

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If you’ve got a deposit tucked away and you’re seriously looking for a place to buy, it’s a good idea to start shopping for a mortgage. The home-buying process can move fast, and it makes things much easier if you’ve already got a lender on side. This is known as pre-approval and it can take a lot of the uncertainty out of knowing what you can afford.

But while the bank or financial institution needs to make sure you’re a safe risk, there are two sides to this relationship. It’s important that you feel confident about what you’re signing up to before you commit. Here’s what they’ll want to know – and what you should ask them in return.

What the bank wants to know

How big is your deposit?

Most lenders expect first home buyers to have at least 20 per cent of the amount they want to borrow. With the average New Zealand house price now at $550,000, that means you’ll need to show that you’ve saved $110,000 if you want to buy a property at that price.

How much do you earn?

As well as wanting facts about your income, they’ll want to know how much you spend, plus full details of any other debts or loans. 

What to ask the bank before you sign up

How much can I borrow?

Sometimes a lender may want to loan you more than you’re comfortable paying out of your weekly income. Remember that you have to be able to afford the repayments. You don’t have to borrow up to your highest limits if you don’t want to. Our mortgage calculator can help you figure out your repayments.

What fees will I have to pay?

What will it cost you to take out this mortgage? For example, will you have to pay a low equity fee if you have less than 20 per cent deposit? Will there be any penalties if you pay off a chunk of the mortgage early? Can they waive your normal account fees if you take out a mortgage?

What’s the best way to structure the loan?

What set-up will suit you best, and is this flexible if your circumstances change? For example, are you better off with a table loan (where you sign up to make regular payments for a set term up to 30 years), or will you be able to pay it off faster if you have a revolving credit loan or offset mortgage?

Also, will you still be able to afford the mortgage payments if the interest rate goes up? If the property needs a lot of renovation work to become liveable, could an interest-only loan work? The lender or a mortgage broker should be able to explain all the pros and cons of these different loan types, including how they’ll affect your payments and the total amount you’ll have to pay.

What insurance do I need?

Most lenders will require you to have insurance for a property when taking out a mortgage. You may be encouraged to get this insurance through the lender or sign up to any number of other insurance policies, such as mortgage protection, income protection and life insurance. Look at these carefully. Don’t feel pressured to sign up but do think about how you’ll manage if things change for you in the future.

What if I sell?

What will happen if you want or need to sell this place and buy elsewhere? Ask if the mortgage (and its terms and conditions) can be transferred to another property.

What else can you do for me?

Some lenders offer sweeteners to entice people to sign up with them. Check the conditions carefully. Don’t let the short-term thrill of a $200 gift voucher blind you to higher fees or a less competitive interest rate.

Signing up to a home loan is like entering any long-term partnership. Do your homework before you commit and you’ll be a lot better off in the long run.

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