Frequently Asked Questions

When you think about applying for home loan in New Zealand, the two most popular channels you approach are banks (including branches, mobile mortgage managers) and mortgage advisors. The choice is yours.

Is it worth getting a mortgage advisor? Should I use a mortgage advisor? Do mortgage advisors get better deals?

In New Zealand, about 40% of home loans are written by mortgage advisors, and this number keeps growing. Here are the pros of using a mortgage advisor in New Zealand:

• Mortgage advisors are not bank employees. Their job is to work on your behalf to find the best possible finance solutions to help you achieve financial goals. Unlike bank employees, who receive a salary (plus bonuses) for writing loans for that lender only, and they have sales targets.
• Mortgage advisors like us work with approximately 30 lenders, and some lenders work exclusively with mortgage advisors, which means, if your bank declines your loan application, we are more likely to be able to help you.
• Getting a good home loan approval outcome is not just about number or calculations. Lots of other things go into it, such as loan structure, legal structure, borrower character, repayment risk evaluation etc. Good mortgage advisors have the ability to package your loan application to improve the chance of approval or get better outcomes, such as fewer approval conditions.
• Mortgage advisors like us are advice focused. Although we only get paid by the lender if your home loan is settled, we spend considerable time (free of charge) during the consultation stage trying to help you becoming a qualified borrower sooner. We also hold your hand throughout the application process to help you remove any roadblocks and answer questions. Banks normally give you either an approval or decline outcome. There is nothing in between.
• Mortgage advisors do all the legwork for you to evaluate lenders and loan products to ensure you have the best possible solution and price (interest rates and cash backs) and can save you the time and money with all those daunting details. Good mortgage advisors will continue service after loan settlement because it’s very important that your home loan and financial circumstances are reviewed regularly (at least every two years) to ensure they are still meeting your individual needs. Not putting it away and forgetting about it for the next 25 or 30 years.

If you want to work with banks directly, you want to get all your ducks in a row because, if you fail to prepare, you prepare to fail - you could end up with a negative outcome, and the damage can stay in the bank’s system, making it harder to adjust next time.

When you work with Prosperity Finance, we invite you to talk to us as early as you can because we would like to help you from the very start. It does not matter if you are not ready to apply; that’s why we are here to help you. We are interested in understanding your situation and goals, so we can provide the right advice to make your journey easier. Remember, we offer a free service.

How mortgage advisors make money?

Most of the time, mortgage advisors get paid a commission by lenders for their services after the loan settles. The commission varies from one lender to another. We can be liable for a commission ‘clawback’ if the client repays their loan within 3 years.

Good mortgage advisors should work in the client’s best interest; therefore, when it comes to choosing the best lender, it should NOT put their remuneration level into consideration.

Sometimes, though, mortgage advisors must go to non-banks to deliver a solution. Generally, non-bank lenders do not pay; therefore, we must charge the client directly. If that’s the case, the advisor should communicate this with the client upfront, leaving no surprise in the end.

Not all advisors are equal. Unfortunately, at the moment in NZ, the commission only structure and entry into the industry attract “a certain kind of person” who does not necessary always act professionally (The process is tightening.).

Here are some common attributes of a good mortgage advisor. We hope they are helpful in finding a good mortgage advisor in New Zealand.

• Good advisors are solution focused, rather than price focused and loan size. We are not saying the interest rate etc. are not important. We don’t want our clients to waste any of their hard-earned money, but only if the solution meets their needs and facilitates future goals. To provide a good solution, they must listen and ask lots of good questions to understand people’s situations and goals.
• Good advisors should have access to at least 20 lenders to provide the best possible solutions. Just request a copy of their terms of engagement to see who they work with.
• Good advisors should keep you up to date about your application process and respond to your questions.
• Good advisors focus on relationships, not transactional model. Once the loan is settled, they should continue to look after you, renew your loan, refix, and keep in regular contact. The reason they do these things is simply because these are important to you, so they should care!
• Good advisors have strong relationships with lenders and understand how to package your application to get the best chance of approval with fewest approval conditions.

Finally, we suggest you read other clients’ reviews and see what people have to say about them.

What is a home loan pre-approval?

A home loan pre-approval is an offer in writing from a lender that outlines how much you can borrow, providing you can meet specified conditions. Please note, when the bank issues a pre-approval letter, they have not evaluated the acceptance of the property you are looking to buy; therefore, even if you have pre-approval in place, you still must get written confirmation from the lender, confirming they are happy with the property you want to purchase.

Why do you need a home loan pre-approval before you looking to buy a house?

Pre-approval from the lender gives you the confidence of your borrowing capacity and property budget and what conditions you must meet before taking out a home loan. Once you have that in hand, you will have an idea where to look and what type of property you can afford, etc. When you are interested in buying a particular property, all you need to do is contact the bank or your broker to make sure the property is acceptable by the lender (for a straightforward sale and purchase agreement, the acceptance can be provided within the same day), and if you have no other finance conditions to be met or you’re confident you can meet the conditions (e.g., cancelling credit card), then you may want to make an unconditional purchase offer, which gives you bargaining power over other buyers. It’s also very important to have a pre-approval before attending an auction because you can’t list any conditions if you buy via auction. If you don’t have a pre-approval in place, there is risk of not obtaining finance. You don’t want to be in a stressful situation and lose your hard-earned deposit.

What’s not covered in the pre-approval letter:

• Property acceptance by the lender
• Interest rate and cash back (these can only be negotiated once you have found the property and met all conditions)

We always recommend getting a pre-approval before looking at properties to eliminate the risk factors. 

It depends on your circumstances and loan application purpose and if you are an existing customer with the lender you are looking to apply with. We will advise you after understanding your situation. 

LVR stands for loan to value ratio. Effectively, LVR is the calculated borrowing amount as a percentage of the property value. If you buy a property for $1m and borrow $800k, the LVR is 80%.

LVR rules are set by the Reserve Bank NZ to put restrictions on the lending that registered NZ banks may do.

As at 1^st Jan 2018, to buy an owner-occupied property, the max LVR is 80%, which means the borrower must come up with a 20% deposit or equity. For investment property purchase, the LVR is only 65%, which means the borrower must have a 35% deposit or equity.

If you don’t have enough deposit or equity, your loan application will be affected by the LVR restrictions, which means the Reserve bank allows no more than 15% of their residential mortgage lending to high LVR (less than 20 percent deposit) borrowers who are owner occupiers and no more than 5 percent of residential mortgage lending to high LVR (less than 35% deposit) borrowers who are investors.

Every bank has their own rules for the restrictions to make sure they don’t get close to the limit and lose their bank licence.

Some banks even put restriction on how high the LVR can go. The number is between 85% and 90% subject to their capacity, and you must be one of their main bank clients for at least a few months.

LVR is a tool controlled by the Reserve Bank to ensure the NZ economy is more resilient to shocks, like the Global Financial Crisis, and give protection during property cycles.

For NZ banks, it’s also a good risk management tool. If the borrowers have skin in the game, it protects the lenders from getting into a bad debt situation.

Fixed Interest Rate

Fixed rate mortgage provides certainty. Once a loan is fixed for a specific period, the repayment is the same for each payment, which allows you to budget. Knowing the exact payment amount makes financial planning easier. However, the downsides are:

• You may incur penalties if you want to make an extra payment.
• If interest rates decrease, your payments will remain the same during the fixed period 

Variable/Floating Interest Rate

Floating rate has the benefits of enjoying lower interest rates if rates decrease and has the flexibility of making a lump sum repayment without penalty. The main risk is the interest rate can fluctuate, and your payments may increase if the interest rate increases.

Floating rates are generally higher than most fixed interest terms.

Your mortgage broker will be able to give you a recommendation and provide reasons according to your situation and plans. 

• Mortgage interest rates – what is the most competitive? If you can take this advantage, it will help you minimise the interest costs over the course of the loan terms. You can go to the bank’s website to see current interest rates.
• Predict how the interest rate will move in the near future? If you don’t closely read news about finance, it’s hard to keep up to date about all the factors that drive interest rates. Good Mortgage brokers should be able to provide advice. At Prosperity Finance, we record a video each month for the interest rate trend. Some factors that drive interest rates movement are OCR / inflation, local deposit rates, wholesale offshore rates, bank profitability, and the lender’s appetite and competition.
• Your personal situation and plan - If you expect the income for debt servicing to be lower or uncertain in the next few years due to having an additional child, job change, travel, starting a new business, or health issues, then longer term probably weighs more than having a lower rate for 1 year & 2 years rates.
• Personal Risk Tolerance -  You should also consider your appetite for uncertainty. Are you the type of person that will worry about the possibility of rates going up?
• Finally, if you want the best of both worlds, one common strategy is to break a mortgage into several tranches and spread the rates across different fixed rate periods.

Interest only repayments are exactly as the name suggests - you only pay the interest with each repayment. The principal (the amount you borrow) must be repaid at the end of the loan term.

Principal and interest repayment, also called ‘Table loan’, means your repayments stay the same over the term of the loan. You generally pay more interest at the start, so initially, you’re not building much equity (the amount you own) in your home. However, the balance changes over time, and later, you repay more principal than interest, and your equity builds faster.

What is better interest only or principal and interest loan?

Interest only mortgage is commonly used by property investors, especially if they still have personal debt, such as their family home loan. It is mainly for tax reasons -  interest costs generated from investment property debt are tax deductible. It makes perfect sense to consider paying off personal debt prior to paying off investment debt. Other reasons for investors to have interest only loans are so they can free up cash to purchase more properties and grow their property portfolio and gain wealth.

Some first home buyers have their home loan on an interest only term because they want to take time to use to the new debt repayment obligation. Normally, they take a year to adjust their lifestyle and then start paying principal. Occasionally, people change from paying principal to interest only because of experiencing financial hardship.

We recommend for owner occupied property loan, If you can afford paying principal and interest, it’s the best way to save money. The interest costs you pay over the 30-year loan term are approximately the same as what you borrowed in principal if not more.

 For investors, we recommend you pay interest only if you have other personal debt. However, make sure you are disciplined to put money aside as if all mortgage debt was on principal and interest. That way, once you must start paying principal, you won’t struggle.

Note: interest only terms are generally available up to two years for the purchase of an owner-occupied property and up to five years for the purchase of a residential investment property.

• Existing relationship with the lender
• Their credit policies
• If the lender can maximise your borrowing capacity
• Approval conditions
• Branch network
• Online Banking
• Allowing for redraw
• Client service
• If the lender can support your future goals
• Lender’s capacity and appetite
• Lender’s turnaround time
• Interest rates and cash back, and fee charges Other features, such as ability to make extra payments, clawback clauses, allowance for 2^nd mortgage etc.

As we have our client’s best interest at heart, we won’t just accept the lender’s price the first time. This is how we do it at Prosperity Finance:

First, we advise the client on how to choose interest rate terms.

Our clients then give us up to 3 interest rate terms, so we can narrow the options and get the best rates quicker (lenders know clients are serious and know what they want).

We then compare the offer with recent rates we have received for other clients in the similar situations (e.g., same lender, similar loan amount, and LVR etc.). If we feel there is room for negotiation, then we go back to the lender until we get the best deal. We have a system that can track rates and cash back for each lender’s offer.

Sometimes, a client may see their family and friends receive a better deal. It’s almost impossible to compare the two because we have little knowledge about their circumstances, plus the lender and time the offer was given can be different, making it difficult to compare apples with apples.

You can rest assured it’s unlikely you can get a better price by going to the bank directly, as almost all main banks have a policy to remove the price differentiation between sales channels (branches, mobile mortgage managers, and mortgage brokers). We can get the best price for our client quicker as we know the bottom line.

In our business, we don’t promote this because this should be a given if we do a good job for our clients. We offer other values that are also very important. 

When it comes to home loans, there are two main factors that drive lender’s decision – the deposit you can contribute towards the purchase, and your ability to meet the loan repayment during the loan terms (generally between 25 – 30 years).

Let’s first look at what the acceptable house deposit options in New Zealand are. You may choose to use a combination of all house deposit options.

• Savings

Every time you get paid, create the discipline of putting a portion into a savings account. This is also important, as once you start paying mortgage, you don’t feel as much burden to keep the mortgage repayment.

If you apply for a low deposit mortgage, lenders normally require you to have at least 5% deposit from your savings, rather than all being gifted to demonstrate you have the capacity and discipline to manage your money.

• Gifting

Gifting needs to be unconditional, no interest bearing, non-repayable, and non-refundable.

• Using KiwiSaver for house deposit

You can now withdraw money from your KiwiSaver account to put towards your deposit.

• Family member equity loans

Some lenders (not all) would allow you to use equity in your family member’s property as your deposit. This portion will be in your and your family member’s joint name, and they only guarantee this portion of the home loan. You will be solely responsible for the balance of the other 80%.

The joint portion is short term, so you can pay it back sooner. The family member should see their obligation is discharged once your equity exceeds 20 per cent, or the portion they guaranteed is paid off.

Please note, to become a guarantor, your family member must meet standard home loan lending criteria, as they are responsible for repaying the loan they guaranteed if you cannot meet your repayments

We recommend you and your family member(s) each seek independent legal advice when considering this option, so you all understand the risks and ramifications of signing a guarantee.

• Government assistance - KiwiSaver HomeStart Grant

If you’re in KiwiSaver, you might qualify for a first home grant of up to $5000 or $10,000 for a couple who both qualify. If you’re buying a new-built house, or building a new house, you are eligible for $2000 per year you have been in KiwiSaver, up to $10,000 or $20,000 if you’re buying with another person.

You could also be eligible for a Welcome Home Loan, which is a low-deposit loan underwritten by Housing New Zealand.

• Sale proceeds of assets, e.g., car, house, jewelleries
• Inherited cash

Along with being able to withdraw money from your KiwiSaver account, members are eligible for a grant of up to $5000 each if you meet the following criteria:

• Have contributed at least 3% of your income to KiwiSaver for at least 3 years.
• Have 10% deposit including the grant.
• Have a before-tax income of less than $85,000 for one person or less than $130,000 for two or more people in the 12 months prior to applying.
• Be planning to live in the house for six months after purchase.
• Be buying a house under $600,000 in Auckland, $500,000 in other major metropolitan areas, or $400,000 throughout the rest of New Zealand.
• Or be building a house worth under $650,000 in Auckland, $550,000 in other major metropolitan areas, or $450,000 everywhere else.
• If you qualify, you are eligible for $1000 per year you have been in KiwiSaver, up to a maximum of $5000. If you’re buying with another person and are both eligible, you can get up to $10,000 in total.
• If you’re buying a new-built house or building a new house, you are eligible for $2000 per year you have been in KiwiSaver, up to $10,000 or $20,000 if you’re buying with another person.

Once you’ve been a KiwiSaver member for at least three years, you may be able to use your KiwiSaver savings to help you buy your first home. If you have owned a home before, in some circumstances, you may still be eligible to withdraw your savings.

If you're eligible, you may be able to withdraw:

• your member’s contributions
• any employer contributions
• any returns on investment(s) received
• any member tax credits.

Before applying for your home loan pre-approval, you must provide a KiwiSaver eligibility letter. This letter includes confirmation of your eligibility to make a first home withdrawal and your estimated withdrawal amount. Your KiwiSaver provider can provide you with an eligibility letter.

Once you’ve found the home you want to buy, it’s important to apply for your

first home withdrawal early, as it can take up to 10 working days to process. Talk to your solicitor; they can help you through the process.

If the withdrawal is approved, the money will be paid directly to your solicitor or conveyancing practitioner.

• Valuation:   $500 to $1000
• Pre-Purchase Building Inspection: From $250 for verbal and $500 for written report
• LIM: from $250
• Legal fees:  from $800
• House Insurance: from $500
• Share of rates pre-paid by the vendor
• New furniture and appliances            
• Renovation
• Cleaning
• Moving
• Connecting gas, electricity, phone and Sky TV
• Insurance for personal risks and mortgage repayment 

Prosperity Finance provide our clients with solutions and relationships, not just transactions. We are proud of what we can do for our clients. Because we care, we’d like to get involved early, so we can add more value to our clients. Although we don’t get paid until loan is successfully settled, we want to put our focus on the client, not sales and profit (even though we rely on it to support our living). We believe, if we do good things for clients, good things will happen to us. We can still grow business after spending so much time with our clients and prospects because of:

• Our highly effective team
• Our internal process automation saves us time, so we can focus on building connections with clients and prospects and add values
• Our tools and processes make collaboration within the team seamless
• Our clients love their experiences with us, so they bring more businesses to us to help us grow (this is what I mean by good things…)

At Prosperity Finance, the client will experience a four-stage process that makes obtaining finance a breeze and provides clients lots of value. These stages are:

Discovery stage – this could be done over the phone and sometimes face to face. The purpose of this stage is to get a deep understanding of the client’s situation, motivation, and goals. We then design strategies and plans to help fast track their progress of becoming qualified borrowers.

Follow up – we make regular follow-ups with prospects to see how they progress and answer questions they may have.

Application Stage – this stage will be kicked off once the client is ready to apply for a loan. Our goal is not only to obtain the best possible approval outcome, but we are also advice focused, which means the client will be empowered to make sound finance decisions and enjoy a stress-free journey.

Post Settlement Stage – post loan settlement, we keep regular contact with the client to find out how everything is going at their end and make sure the loan structures are still meeting their needs. We also assist with loan refix and advise on how to make good refix decisions etc.

Not reviewing your mortgage regularly is dangerous territory. By setting and forgetting, you could be costing yourself considerable interest. By reviewing your mortgage at least once a year, you will ensure the structure and repayment are still meeting your needs during each of your life stages. At Prosperity Finance, we do this automatically as part of our commitment to you, and it’s a free service.