Need Some Answers?
Here are some basic answers to frequently asked questions. The answers are not always simple so you made need to talk to your mortgage broker or your lawyer.
What is a home loan?
Generally, a home loan is obtained from a lender to purchase a home. The loan is secured against the home you are buying and the lender’s interests are registered on the certificate of title. This protects the lenders and in simple terms means that you can not sell your house until the loan to the lender is repaid. This is a complex legal subject and your legal adviser can explain the full legal requirements and implications of a mortgage.
What is a mortgage?
The home loan is secured by a mortgage. A mortgage is a form of security taken over real estate and land. It gives the lender the right to repossess the real estate or land if the borrower does not repay the loan. This is a complex legal subject and your legal adviser can explain the full legal requirements and implications of a mortgage.
What are the benefits of using a mortgage broker?
Mortgages are complex and there are many different types of home loans available form a large number of competitive lenders. An Approved Mortgage broker can help you choose a home loan that is suitable and appropriate to your personal circumstances. An Approved Broker saves you time. They do the leg work for you. They are committed, through membership of the Approved, to work in your interests.
How can I check if the mortgage broker is an Approved Mortgage broker?
It is simple, you can check by using this site. Go to the locate a broker section. All members are listed. You should look for the Approved logo on their signs and business cards. If the mortgage broker is a member of the Approved then they must disclose this fact to you in a formal way. If they are not a member of the Approved then do not deal with them.
How much should I borrow?
Generally you should only borrower what you afford. Work out if you can afford the repayments. Prepare a budget with the help of your mortgage broker before you commit to any borrowing. This will tell you how much the home loan will cost you each month or fortnight.
What home loan is suitable for me?
This depends on your individual circumstances. Your mortgage broker can discuss the options available to you from a range of home loans.
How often should I review my home loan?
It is sensible to examine your personal finances on a regular basis. You should look at the way your mortgage or home loan is managed at least once every two years. This may mean that you do nothing or you may realise that the home loan option you have chosen no longer works for you or meets your changing needs. Your Approved mortgage broker can help you.
Who is the mortgagee?
The mortgagee is the bank or lender. They lend principal or money which is secured against the home of the mortgagee.
Who is the mortgagor?
The mortgagor is the borrower. They borrow the money by giving the lender a mortgage secured against their home.
What is a repayment mortgage?
The borrower pays back the home loan at regular intervals either each month or each fortnight. The amount paid back includes some principle and interest.
What is meaning of principal?
The sum you borrow. For example you want to buy a $100,000 home. You have $25,000 and you need $75000 to complete the purchase. The $75,000 will be the principal.
What is the meaning of interest?
When you borrow money you pay interest on the amount you borrow (the debt).
There are different ways interest can be paid and the method may depend on the type of home loan you have. Home loans can take their name form the way in which the interest is to be repaid. Here are some of the common types:
Fixed rate – the interest rate is fixed or set for a definite and agreed period of time, for example, from 1 year to 5 years. This means that the interest rate never changes in the period. It remains constant no matter what happens to the economy or changes in interest made by the lender.
Variable rate– the interest rate varies and changes. This means that the borrower pays the mortgage interest rate as it moves up or down based on changes in the market and economy. The mortgage rate of interest generally changes when the Reserve Bank of NZ makes changes to the Official Cash Rate.
Interest only – the borrower pays only the interest on the home loan. The principal amount is paid at the end of the loan or when the mortgage is discharged.
Capped rate – the interest rate is fixed but if the rate of interest set by the bank falls you can pay the lower rate.
Discounted rate – the amount of interest to be paid id the lenders variable rate minus a permanent discount.
How do Approved mortgage brokers get paid?
Generally the lender pays the broker a commission for arranging the loan with the borrower. You do not have to pay the broker. If a broker charges you a fee then they will tell you before they do any work for you. All Approved mortgage brokers must tell you how they are being paid and the nature of the payment. Only use an Approved accredited mortgage broker.
What does the term drawdown mean?
The term means the act of transferring money form the lender to the borrower after the loan is agreed and settled.
What does gross income mean?
It is income or revenue from a person or company before tax is deducted.
What is a certificate of title?
Ownership of land is detailed in registration. Registration is compulsory because it effects legal transfer of title in land. The title shows you who owns land. New purchasers register a transfer in legal tile when they complete the sale. Generally lawyers do this for you so ask them for more details.
What is the term of a loan?
It is the length of a home loan or a specific portion of the loan.
What is the settlement?
Settlement is the finalisation of payment by the new owner to the seller. It is when you get possession and the keys to your new home.
What is a reverse mortgage?
This type of home loan is also called a “home equity”?.
Older people who own their own home but have small or limited income or pensions can borrow a sum of money for any purpose. The money can be a lump sum and the loan is registered as a mortgage against the borrower’s home. The borrowers continue to live in their home.
The borrowers do not make any repayments of either the principal or interest. Principal, interest plus any fees are added to the loan each year. The amount builds up over the years to a total amount owed which is repaid when:
- The loan ends
- The house is sold
- The borrower moves to another house or into residential care
- The borrower dies (if there are 2 borrowers when the last one dies)
When the loan ends the either the borrower or his/her estate must pay back what is owed to the lender. This comes from the proceeds of the sale of the home.
The amount a borrower can get depends on his /her age and the value of the house.
What factors should I discuss with my mortgage broker about reverse mortgages?
Discuss the affects of:
- Your age and value of your house
- If your house increases in value
- If your house decreases in value
- Increases in interest rates
- Decreases in interest rates
- One large Lump sums or regular smaller amounts
I am thinking about a reverse mortgage – What other factors should I consider?
Talk to your family and your financial and legal advisers about the following aspects:
- Your long term financial needs
- What you leave to your family when you die
- Your flexibility
- The terms of the agreement
- How comfortable and clear you are about the arrangement
- Do you understand what you have been told, if not, ask again.
Remember interest rates can go up and down.