New Zealand major banks, ANZ, BNZ, Westpac and ASB have cut mortgage rates in 2019. Their current one-year fixed-term mortgage rates of 3.55% hit the lowest in their interest rate history.

Lower and lower, that is the continuing track for fixed-term interest rates in 2019.

The New Zealand subsidiary of the Bank of China has launched a 3.15% of fixed-term rate, setting a record low in the New Zealand interest rates history.

They have a 0.4% advantage over main banks for the popular one-and two-year fixed terms.

Say you borrow $500k against a property from ANZ, then you’ll need to pay a further $2,000 in interests. Not to mention that many people borrow more than $500k.

Many clients often say that they prefer to apply for their home loans from New Zealand’s major banks, rather than Chinese banks. They are worried about if any risks might occur.

That’s why, in this week’s blog, we will look at the pros and cons of applying for your home loans from Chinese banks (operating in New Zealand), so you can balance the benefits with the potential disadvantages and make an informed decision on how you want to select your lender.

Should I apply for my home loan from subsidiaries of China’s banks for the current lowest mortgage rates of 3.15%?

Video Timeline:
1. The pros of choosing Chinese banks 01:41
2. The cons of choosing Chinese banks 04:05

The pros of choosing Chinese banks

·  Larger loan amount

When Bank of China calculates your borrowing power, they use a different formula to evaluate how much you can borrow. If your family income is higher, or your existing loan amount is large, you can borrow much more money from Bank of China, compared to New Zealand major banks.

·  Lower interest rates

The New Zealand subsidiary of the Bank of China has launched a 3.15% of fixed-term rate, setting a record low in the New Zealand interest rates history.

They have a 0.4% advantage over main banks for the popular one-and two-year fixed terms.

·  Longer validity of pre-approvals

For many New Zealand major banks, pre-approvals last for three months. However, Bank of China’s pre-approvals last for four months, which means you will have a longer time to find your property.

·  No claw back

New Zealand major banks will give a sum of cash back to you as an incentive for becoming their customer. However, if you refinance within a certain time period, they are likely to make you repay your cash incentive. This process is called claw back. As Chinese banks do not offer cash back, you don’t need to worry about the claw back.

·  Cash out

If you plan to build a new home by yourself, or by your builder friends, then Bank of China might be your right choice. As long as you have enough income and adequate equity on your existing home, then they can lend you a sum of cash based on your borrowing power. However, if you apply for a construction loan from New Zealand mainstream banks, they’ll lend you money progressly during each process of your construction project. Additionally, you need to meet many requirements to be eligible for their construction loans.

The cons of choosing Chinese banks

·  Limited loan product options

New Zealand major banks offer a great facility called revolving credit. It’s like a big overdraft, which allows you to pay off the loan or withdraw up to your limit, at any time. However, Bank of China doesn’t have a revolving facility.

What’s more, Bank of China doesn’t offer you transactional account for your everyday shopping like ANZ.

·  Longer turnaround time

As Bank of China have limited credit assessors working in the New Zealand office, you might expect one week to four weeks’ turnaround time if you apply for your home loan from them.

·  No high LVR loan

LVR (loan-to-value ratio) is calculated by dividing the amount of the loan by the value of the property. Say you borrow $800k against a property valued at $1mil, then your calculated LVR is 80%.

When it comes to how much of a deposit you need to buy a house in New Zealand, you generally need at least 20% for your family home, or 30% for an investment property. If your deposit is lower than the preferred percentage, it called a high LVR loan as you have a low deposit.

Many New Zealand banks offer high LVR loans. For example, Westpac offers high LVR home loans to 90% for owner occupied, and 85% for investment properties.

However, Bank of China sets strict restrictions on your LVR, which means you cannot apply a high LVR loan from them.

·  Lending policy

Bank of China requires borrower’s name is under personal or family trust, not a company.

Secondly, if you are self-employed and your financial statements are quite complicated, then it could be disadvantageous for you when you apply for your home loan from Bank of China.

What’s more, if your circumstance isn’t an easy case, say you have another income from your commercial properties, then Bank of China may not factor in this income when they evaluate your borrowing power.

·  Home loan for apartment

Lenders from Bank of China set their credit policies tough when it comes to borrowing against apartments. The size of the apartment (including balcony) needs to be bigger than 50 square meters.

·  No cash back

New Zealand’s major banks offer cash back incentive to their borrowers on settlement day. As Bank of China have a 0.4% advantage in interest rates over main banks, the supposed cash back can be offset by making save in the extremely low interest rates.

 

It’s not easy to select the right lender when you apply for your home loans. Whilst interest rates are important, the lowest offers can often mask other pitfalls you need to be aware of. Our experienced mortgage broker will help you balance the benefits and ensure that the benefits outweigh the potential costs.

 

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

Prosperity Finance – here to help

Prosperity Finance looks at your loans strategically, empowering you to make the best long-term, informed decisions. We are professional mortgage brokers and are here to help. Give us a call today on 09 930 8999.

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