Earlier this year I had one of my loans roll over (my mortgage is in 3 parts) and annoyingly, since interest rates had gone up since 2016, I wound up paying something like $20 a fortnight more. (Ish? I’m too lazy to go check.)
Such is life in NZ where we don’t have fixed rates for 30 years.
I refixed that loan for another year, and figured I’d look at a full refinance the same time next year when everything would come up for renewal.
But last month I refinanced it all to a new bank.
Why? So so much has been happening moneywise: a bit of which I actually can’t write about, the rest which I will get around to soon.
The main takeaway is, I’ll now be saving nearly $90 a fortnight, which is nothing to sniff at!
Between rates falling a bit in the past few months and the new bank offering a sharp deal, I start saving money right away. I got $3k cashback, which covered the break fees (just under $1000) and also the cash clawback.
The what?! Well, when I took out this mortgage back in 2016 they gave me $1200 in cash. Annoyingly, there was no paperwork outlining the conditions of this (I only have an email confirming the amount, nothing about the payback period). I would have assumed the clawback was proportional over time (as it is with the new bank – I made sure to get this down in an email this time), but no, they required the full cashback amount be paid back in full if I left early.
I’m slightly out of pocket right now due to the lawyer fees for the refinance process but the fortnightly savings will quickly make up for that.
I’ve also now been able to set up the floating part of the mortgage as offset, so the positive balances in my accounts will reduce the amount of interest charged on that part of the mortgage. It’s not a huge amount right now (a few grand offsetting $25k). But early next year I expect to have a much larger lump sum come in (a topic for another future post) and sit around for a little while – and that will be handy.
Ever been through a refinance? How’d you find the process?
I’ve always felt … oddly grateful toward my mortgage.
I feel much better about making mortgage payments every two weeks than I ever did about paying rent. My mortgage is a means to an end: better health, quality of life, stability (and peace of mind). And one day it will be gone, gone, GONE.
But it does weigh on me sometimes.
I recently got my 6-monthly mortgage statement. Since buying my house in March I’ve paid off $6574 of principal. Sweet! But nearly half of that was extra repayments, which I made straight to principal. Eeesh.
Much as I want to throw everything at it, though, there are other things I want to do in life. Like modernise my 1960s kitchen, for starters, and invest regularly (outside of KiwiSaver, that is).
I’ve always been terrible with balance, and balancing my mortgage against other financial priorities is probably going to be an ongoing struggle.
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 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.
So, if any of that sounds weird, here’s a simple intro to mortgage options.
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. Its is not as easy to get a loan in NZ as in some countries like Sweden where you can get a loan via sms or as they call in sweden sms lån.
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. All 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.