Category: News

Making sure all your bases are covered

The start of the year always feels like a struggle to get going. We have a decent summer break through Christmas & New Years and then a sprinkling of public holidays through January and February which keeps us in holiday mode.

Now that we’re all getting our focus back, it’s really a great time to tick off some of the bigger items on your to do list. We often get feedback from clients that they’ve wanted to review their insurances for a few years but just never quite got round to it. That’s usually because it feels like such a big job, your paperwork and documents are all over the place and there are so many different companies and options out there. So where do you start?

Well the good news is that Eightfold can assist with all of those things. Mike Connellan, our insurance specialist, can help provide a clearer picture of what you’re covered for; how your premiums compare with the market and whether the policies you have are still appropriate for your current situation. And the best part is that this service is free to use – the same way as using one of our mortgage advisors for your home loan is.

Many people take out policies like Life Cover, Income Protection and Trauma Cover but never review them when their circumstances change.  Also, people often don’t fully understand what they’re actually covered for. Mike recently assisted a client who had a Trauma policy with one of the banks and he didn’t know that he could claim for the cancer that he’d had 3 years ago. Mike helped him lodge a claim and he subsequently received approximately $70,000.

If you’d like to book in a review with me to go through your existing policies, or even if you don’t actually have any cover in place and want to find out what cover best suits your situation, please give Mike a call on 021 765 223 or drop him a line at mike@eightfold.co.nz.

Changes in the housing market – good for first home buyers

The new Government is in the process of implementing restrictions which may help take some of the heat out of Auckland’s housing market.

Policies such as the introduction of restrictions on offshore buying and a reduction in immigration numbers should help reduce some of the rampant demand for houses. But while these policies will help reduce some of the competition for houses, fundamentally there are not enough houses available in Auckland to meet the demand so we are unlikely to see a significant fall in prices. The pressure coming off the housing market will hopefully give you more time in your housing search to find the right house rather than rush to find any house.

Those who may benefit most from the cooling of the housing market combined with the changes in the LVR restrictions, which came into effect on 1 January, are first home buyers. Conditions are probably more favourable now than they have been in the last 4 years for first home buyers. The changes in the LVR restrictions now mean that banks can look at lending to more people who have less than a 20% deposit. Banks can now lend 15% (previously 10%) of their mortgage funds to those with less than a 20% deposit.

To put that into context; if you consider New Zealand’s largest bank, ANZ, has a residential mortgage book of approximately $73.5 billion, then based on that, the extra 5%, means they now have an extra $3.6 billion to lend to those with less than 20% deposit!

As mortgage advisors we have certainly notice that banks are far more open to this type of lending, so now is a great time to give us a call on 0800 881 886 and find out whether you may be in a position to get into the market sooner than you planned.

Is buying an investment property still a good option?

There is currently a shortage of rentals available in the market, so the demand for rental property is certainly there. However prospective landlords need to be aware of increasing costs of compliance as the new government looks to implement a warrant of fitness programme for rentals.

The brightline test to remove property speculators from the market is to be increased from two years to five years, meaning that any money made on the sale of a property within that period (that is not the family home) will be liable for income tax.

These changes could affect those not only purchasing new homes, but transferring them into a Limited Trading Company (LTC).

On the positive side the changes in the LVR restrictions that took place on 1 January involved loosening the deposit requirements for investors to 35% from the current 40%.

At Eightfold we keep up-to-date with all the changes that are happening in the housing market. If you would like advice on how to structure or manage your investment property portfolio to work with the new rules, or would like a no obligation chat about navigating the residential investment housing market to achieve your goals, just give us a call on 0800 881 886.

Death to the mortgage!

Will fortnightly loan payments help pay off my loan faster?

This is a question many of Eightfold’s customers have – is it a myth or urban legend; or can this simple change really impact on the cost of your mortgage?

The answer quite simply is Yes!

But to understand why, you need to understand how mortgages work….

 

Loan repayments 101

Let’s start with the basics of any loan. A bank gives you money in return for being paid back the amount lent plus interest on top for providing this service.

Interest is calculated against the balance of the loan, generally daily. As the balance of the loan comes down, so to does the amount of interest you pay the bank.

Therefore the more you pay off your loan balance, the less interest you will have to pay the bank.

 

What comes out of your loan repayment?

When you make a loan payment; a certain amount of the money is allocated to:

  • the principal – a portion of the amount borrowed
  • Interest – amount accrued in the payment period

 

How do loans work in New Zealand

The most common form of repayment structure used by the banks in New Zealand is called a Table Loan. Under this repayment method, as the loan gets closer to maturity the less interest you pay and the more principal you repay.

table loan

 

Back to the question

So, now let’s get back to the fortnightly verses monthly argument. Let’s assume you have a mortgage of $100,000.00 at an interest rate of 5% over a 20-year repayment period. This would have monthly repayments of $659.00.

There are 12 months in a year, but due to some months being greater than 30 days, there are 26 fortnights in a year. If we simply divide the monthly payment of $659.00 by two we get $329.50 per fortnight. However by paying fortnightly you will make two additional payments per year which will mean that more money will be paid off the principal (loan balance) which will then reduce the amount of interest you pay.

  • $659 x 12 = $7908
  • $329.50 x 26 = $8567

The graphs below show the difference between monthly payments and fortnightly payments.

month vs fortnight

As you can see, with fortnightly payments, you could pay off your loan in 17.5 years vs 20 years and pay less interest back to the bank – Death to the mortgage!

 

Other ways you can pay your mortgage off quicker

As you have seen above the more money you can pay off the principal, the quicker you will be able to get rid of your mortgage. Some loan agreements allow you to pay an extra percentage each year, even if you’re on a fixed rate.

 

If you’d like help working out the best way to kill off your mortgage; give us a call today on
0800 881 886.

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