Life with a mortgage (is surprisingly sweet)

Life with a mortgage is pretty sweet

Living with a mortgage ain’t half bad.

My contents insurance, which WAS around $1200 a year when I was renting, plunged to about $400 when I bought my house. Car insurance decreased by a few bucks too. Unexpected fringe benefits of home ownership! My jaw literally dropped when I heard the new figure and I had to ask the rep to repeat it back to me.

My house insurance is about $1250 a year. And since I got a $1200 cash gift from my new bank when I confirmed my mortgage, it’s basically free for the first year.

Council rates (the equivalent of property taxes in some of your countries) are pretty darn affordable. Mine are just under $1500 a year. This is typical for houses in this range; when house hunting I saw probably up to a $500 variation in annual rates between all the properties, based on their value.

And YES, before all you (non NZ) lovers of renting jump in, I’m prepared for the costs of maintenance – I will be referring back to my pre-purchase house inspection report plenty over the coming years, which was brimming with recommendations around everything from insulation to safety glass.

Replacing the deck and repainting the roof will probably be the priorities – but a new kitchen just might come first. There’s no rangehood, no splashback (both noted in the report as matters to remedy) and everything just generally needs an overhaul. Might even knock through a wall and make the whole living and kitchen area open-plan with an island.

How much am I paying?

My 30-year mortgage is structured in three parts. Here’s what it’s costing me per fortnight:

  • $77.83 ($30,000 floating loan @ 5.29% – was 5.44% at drawdown but rates dropped since)
  • $492.24 ($215,000 fixed loan for 2 years @ 4.35%)
  • $474.30 ($200,000 fixed loan for 3 years @ 4.65%)

So I’m paying the bank $1044.37 every fortnight, plus I’m also repaying my family at $200 on top of that: $1244.37 all up. Or, $2488.74 a month.

Thus far I’ve also knocked another $3,000 straight off the principal with extra lump sum payments but now I need to turn my attention to a few other financial priorities.

Mortgages in NZ

So, if any of that sounds weird, here’s a simple intro to mortgage options in NZ.

Or if you’re not much of a video person, let me try to run you through how things work here.

Fixed vs floating: There are fixed mortgage rates and floating (variable) mortgage rates. Fixed rates are typically lower.

The minimum term you can fix for here is generally 6 months and the maximum 5 years. Lots of people (like me) split up their mortgage into a few separate loans, some floating, some fixed. Floating allows you to focus on repaying the loan without penalties, while fixed gives you some certainty around rates (but with less repayment flexibility). And thus, a combo can offer the best of both.

Then there are a few more types of mortgage accounts available with floating rates:

Revolving credit loans are basically a giant overdraft, with one account acting as your loan, chequeing and saving account all in one. Your pay goes straight into the account and the idea is to leave the money sitting there as long as possible (eg putting your expenses on a credit card and paying them off at the end of the month). By keeping the account balance (and thus, loan balance) as low as possible at any time, you save on interest because the bank calculates interest daily.

Obviously this requires discipline and organisation, though you may be able to set it up so that your credit limit reduces over time, making it easier to stay on top of things and ensure you’re making progress. When it comes to refinance/rollover time I imagine I’ll choose revolving credit for part of my mortgage.

Similar but different, an offset mortgage is linked to your other accounts with the bank. Your mortgage interest is offset by the amount you have in your other accounts. For example, if your mortgage balance was $500,000 and you had $20,000 between your savings and chequing accounts, you would only be paying interest on $480,000. But compared to revolving credit, offsetting is not offered by as many banks.

And in case you missed it: my step by step guide to actually buying a dang house, from getting preapproved to settlement day.

16 thoughts on “Life with a mortgage (is surprisingly sweet)

  • Reply Linda June 21, 2016 at 07:49

    Wow, mortgage loans are quite different than in the US! You’ve mentioned before that fixed rate mortgages in NZ are more like the US adjustable rate mortgages and are locked at a fixed rate only for a few years. These additional details around floating and fixed rates are even more complex to me.

    Your “council rates” are much lower than property taxes in my current market, which are 1.25% of the purchase price.

    I’m in the escrow stage of purchasing a home now and am fretting over some issues surfaced by the home inspector. I’ve owned a house before and know there is *always* something to fix, but since I’m in a new area the issues to keep top of mind are different. Here I have to think about things like termites and earthquakes, which were never a concern in Chicago.

    My monthly payment looks to be similar to yours, with the exception of the taxes. At least property taxes can be deducted from my income taxes! Is there a similar arrangement in NZ?

    One final question: what does it mean to paint the roof? You must have very different roofing materials than are typical in the US!

    • Reply eemusings June 21, 2016 at 09:38

      CONGRATS I’m so excited on your behalf!!! It will be so good for you to have a home of your own once again I bet.

      that’s a no on rates and deductability on taxes.

      i can’t be bothered digging out my property report to check … we have some kind of tiling that does require occasional painting (think it’s some sort of metal tile – but more common are tiles of, I guess slate, terracotta etc. I never knew that there were types of roof tile that required painting until now, thought it was only metal roofs that did). Metal (iron?) roofs are quite common – big sheets basically – especially on weatherboard (wooden) houses.

  • Reply Taylor Lee @ Yuppie Millennial June 21, 2016 at 09:54

    Wow your proeperty taxes are so low! Like Linda mentioned, property taxes in the US (or at least everywhere I have lived) hover roughly around 1-2% of home price (though there is usually some sort of discount for resident owners).

    It’s cool you have metal/slate/tile roofs as standard! Those are considered more premium options out here. Asphalt shingles are pretty standard.

    Looking forward to hearing about all the work that you put into the property!

  • Reply Martin - Get FIRE'd asap June 21, 2016 at 10:25

    Congrats on buying what I assume is your first house. Whereabouts in NZ is it? I’m assuming that there is a bit of work (improvements) to be done on it which I consider a great move. Anything you can do to add value to a place should repay itself 10-fold in terms of additional value.

    Hopefully, you’re a practical person who can do much of the work yourself. Paying someone else is the big killer.

    And great loan structure too. My suggestion, if you have the discipline to do it right, take the revolving credit option on part of the loan. It does make a difference to the amount of interest you’ll pay over the long term.

    Good luck and welcome to the home owners club.

    • Reply eemusings June 21, 2016 at 16:04

      Thanks!

      West Auckland.

      I definitely plan to go with revolving when it’s refinance time. You may not have been reading long enough to keep up with the financial drama that has plagued me in the lead up to buying this place, but that’s why I didn’t go with it to start off. I knew I would be recovering from having all my systems out of whack, and now finally (touch wood) settling back into a bit of a money routine again.

  • Reply Sense June 21, 2016 at 14:30

    Oh dear, that video is so cringe-y! šŸ™‚ hahaha.

    It’s very interesting to see what you pay per fortnight/year–really good to know! I mean, the cost of your mortgage is more than I have coming in, so I’m still pretty far off in that regard, but seeing your real numbers helps me to picture home-ownership as a tangible goal. Thanks for posting them!

    • Reply eemusings June 21, 2016 at 15:46

      Ahh, Nu Zilland. I know, I know.

      I definitely wouldn’t be able to do this if I hadn’t made a career change. It helps to have two incomes but I would be fine on one (albeit tight, and I’d look to get a flatmate in that case). May also get around to doing Airbnb in the summer maybe.

  • Reply Leigh June 21, 2016 at 15:34

    Thanks for describing your mortgage! It’s fascinating how they work in different parts of the world. I assume you picked the variable amounts yourself, based on your projections of what you can afford to pay extra on?

    I think my car insurance dropped about $200-300/year when I bought my condo. And condo insurance is barely more expensive than renter’s insurance, so that’s not so bad. My property taxes are way more than yours though – they’re about 1% ish of my property value.

    In the US, you can fix your rate for 10, 15, 20, or 30 years with that same amortization or you can do a 30 year amortization and fix your rate for 1, 3, 5, 7, or 10 years. I went for the 30 year amortization and my rate fixed for 5 years. There are no repayment penalties at all though, which is quite lovely!

    • Reply eemusings June 21, 2016 at 15:56

      Oh yes, I should probably have mentioned (will add it in!) that all of these are based on 30 year amortisation. I got a letter saying the other day the term of my $30k loan has reduced – it’s down to like 26.5 years or something now because of the extra I’ve thrown at it.

      Yep, I picked my rates/terms. It’s all a bit of a gamble really, it’s a balance between lower rates vs longer term certainty. Nobody thought rates could keep dropping, they’ve been saying for ages this is as low as they’ll go, but they’ve come down slightly since and may still drop a bit more yet by the looks of it.

  • Reply Emma Healey June 22, 2016 at 10:19

    Nice and I gotta admit I thought you’d be paying more. That’s really affordable for Auckland. Plus you’ve probably made like 200k in paper gains since you bought it šŸ˜‰

    I love my offset mortgage, last month we only paid $40 interest on the mortgage due to having an insurance payment sitting against the loan. It’ll suck when we finally get the repairs done but for now, I’m quite happy with my guaranteed 5% return.

    • Reply eemusings June 22, 2016 at 10:27

      Yeah when you think about the fact that rent on an equivalent place would not be much less, for me it’s a no brainer to pay a little more for security. If I had had 20% (and thus wasn’t paying my parents) it would basically be on par with rent. Honestly, it’s the deposit rather than actual repayments that are the big issue for most people in Auckland. I remember starting to play around with mortgage calculators a few years ago and being surprised at the numbers – more affordable than I thought.

      I do worry about interest rates rising hence putting extra towards repayment but that’s a hell of a lot less stressful to me than worrying about the combo of a) having to move at any time and b) constantly rising rents – who knows what rents will cost when I’m 65.

      $40 in interest – niiiiice! Put those repairs off šŸ˜›

      A friend and i were chatting the other day about the financials of having a family (our houses cost about the same and I think our household incomes are similar) and we just could not fathom how a single earner on the average wage can afford to have a family and live in any half decent place. An average home (be it rental or mortgaged) would literally take basically your whole pay each week. For our respective partners (though hers has got a better paying job now) their income would basically just cover mortgage and not much else. I guess you’d get WFF/tax credits, though.

      • Reply Emma Healey June 23, 2016 at 10:11

        You’re dead right. If low to medium income earners don’t own a home by the time they have their first kid, I doubt they ever will. You do get WFF. We get about $150 a week until I go back to work (but we have 2 kids) so that does make life much easier but if we had to pay market rent (around $350-$400/wk here) that’d be more than half of what my husband takes home on a bad week (he has a bonus system but it’s up and down). That means the saving of a house deposit would be impossible, or delayed until the youngest started school at 5 and I could go back to work full time. Either way, a crap scenario.

  • Reply Karen June 22, 2016 at 12:18

    Having a mortgage is a mix of love and hate relationship. So far, my budget consists of 25% of my income and we have a number of financial priorities so I cannot bleed further repayments. Maybe sometime šŸ™‚

    Karen
    http://www.frugalian.blogspot.com

  • Reply Tracey June 22, 2016 at 15:58

    Your contents insurance was $1200?! Sweet Jesus! It’s been about 7+ years since I’ve had contents insurance as a renter, but I’m sure it was about 1/6th of that! Now that I’m a homeowner and own way more stuff than I ever did as a renter, my contents insurance is only $310 and that’s without a no-claims bonus as I’m a klutz.

  • Reply Pia @ Mama Hustle June 23, 2016 at 05:20

    Whoa your mortgage is way different! I also recently bought a house (moved in about 3 weeks ago), and have really enjoyed it. None of the buyer’s remorse I hear a lot of people talking about. The payment is close to what we were paying in rent, and it’s so much closer to work.

    What’s the average commute like on your side of the world?

    • Reply eemusings June 23, 2016 at 09:13

      Depends heavily where you live as this is a rather spread out city! For example at work I have colleagues who commute 15/20 mins and colleagues who commute up to 2 hours on a bad day. I’d say broadly though, 30 mins would be a good Auckland commute and up to 45-60 mins is fairly average.

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