Understanding the Settlement Process When Buy a Home

Finalising Home Loan Structure

At property Finance, we help you through the process of finalising loan structure by giving your tailored advice to empower you to make an informed decision. 

Loan Structure includes the type of the loan products as well as interest rate strategies. In the section of ‘Home Loan Application Process’, we have discussed each loan products and their pro and cons. Most of the banks require the products decision to be made at the time of pre-approval application especially with the revolving credit limit, and interest only loan terms as they form part of the credit decision-making process. It’s easy and normally without re-approval to change from interest only to principal and interest payment, or from revolving to principal and interest payment, but lenders generally have to re-approve a loan if changes are the other round. If changes in products are made after pre-approval and it may affect approval outcome in case of changing in lending policy or your financial circumstances.

In this section, we talk about the interest rate strategies.

What is better variable or fixed interest rate?

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

A floating rate has the benefits of enjoying lower interest rates if rates decrease and have the flexibility of making a lump sum repayment without penalty. The main risk is the interest rate can fluctuate, and your payment might increase if the interest rate increases.

Floating interest rates are generally more expensive than most fixed interest terms.

Things to consider when deciding on your loan structure

• What is the most competitive interest rate term?
• How will the interest rate move in the near future?
• Your personal situation and plan.
• How risk averse are you?
• 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 time periods. 

At property Finance, we help you through this process by giving your tailored advice to empower you to make an informed decision.

Pre-settlement Checklist for Home Buyers

Once you have confirmed your loan structure we will help you lock the mortgage rates and loan structure and sign bank forms (tax form, lock rate agreement, ownership declaration, etc.).

We will then instruct the lender to prepare and issue loan documents which are then sent to your solicitor for signing and arranging loan account opening process.

Your solicitor will contact you to arrange an appointment to sign the loan documents and answer any questions you may have.

We remind you to conduct the pre-settlement inspection a couple of days ahead of settlement to make sure the property is in the same state and condition as at the date you signed the Agreement. For any issue, contact your solicitor first as they can then liaise with the vendor’s solicitor to remedy the problem(s). Before settlement, you send any remaining deposit funds to your solicitor to complete the settlement.

What Happens on the Settlement Day?

What happends on settlement day in New Zealand?

On settlement day, your bank will send settlement funds to your solicitor who will transfer all funds from the lender, yourself, KiwiSaver withdraw, and KiwiSaver HomeStart grant if applicable and pay to vendor’s solicitor’s trust account.

Once the vendor’s solicitor confirmed funds are in place, your solicitor will update property ownership with your name and register lender as mortgagee.

I understand you are feeling excited about taking possession of your dream home, but settlement can be stressful as some things can go wrong or get delayed.

How long does settlement take in New Zealand?

Normally settlement completes by 3 pm but can be as late as 4:30 pm due to various reasons. Common causes include insufficient insurance, there is a chain of settlements, or final inspection problems have not been fixed to buyer’s satisfaction.

As your trusted advisors, on your settlement day, we make sure we stay alert and work with your solicitor to solve any issues or delay. Once your property is settled, you will get notified by your solicitor and can go to the real estate office to pick up keys and ready to move in. 

What Happens After Settlement?

After the settlement, we will follow up with the lender to make sure your cash back incentive is paid within a week and another follow up at one month after settlement to make sure the first payment is okay.

We will keep in touch and provide you with the opportunity for loan review twice a year to ensure the loan structure still meet your circumstances.