If you are looking to purchase a house and sit down with your lender/broker the conversation tends often comprises the following:

Purchaser: “How much can I borrow?” lender – “according to our calculator you can borrow  $X based on your incomes, ages, other debt and commmitments”. What may or may not be established is that to maximise the amount you can borrow you are also maximising the amount of your loan term. The net impact of this means you unfortunately also maximse the amount of interest you will be paying.

Purchaser: “What is the best interest rate you have?” Lender “Currently the floating rate is around 6% and there are fixed rates from 4.5%-6%. The 2 year fixed rate is under 4.6% so is a great rate and will give you good certainty going forward”. What is often not covered is fixing 100% of your borrowing will also restrict any ability to pay down your loan quicker.

New Zealanders are now being forecast to take 50 years to pay off their mortgage. This needs to change and asking the right questions will start this change. The questions need to be changed to the following:

Purchaser: “How much can I borrow?” lender – “$500000” if I borrowed $460000 how much faster could I pay off the loan, what about if I borrow $420000? It is important for you to understand the differences in what you are borrowing, it could change your ability to pay off the mortgage by 10-15 years so you need to be comfortable with whatever amount you are looking to borrow. (This will be repeated numerous times in your life as you change houses and could easily mean the difference between paying a mortgage for 25 years or paying one for 50 years )

Purchaser “What is the best interest rate you have?” This need to be changed to “what is the best loan structure that will keep my interest rate low yet allow me to minimise my interest costs and pay down my loan quicker"

The information contained in this article is of a general nature and should not be taken as advice. It reflects the opinions of the writer only and does not necessarily reflect the opinions of New Zealand Home Loans.