Why interest rates will stay low all year
We would be surprised if interest rates went any higher this year. Banks are simply retailers of money: they buy it at wholesale rates and sell it on to you. And right now those wholesale rates are extremely low.
If you keep an eye on international home loan interest rates, you’ll have noticed that they are incredibly low: below 1.5% in Japan; below 2% in the UK; below 3% in the US and France. Some banks in Europe actually bottomed out with negative interest rates early this year. That’s right, you have to pay the bank for them to hold onto your money, and they’ll pay you to take out a mortgage. (If you think that sounds nuts, you’re not alone.)
With this kind of craziness going on around the globe, New Zealand banks can borrow money at fantastic rates, and that’s not likely to change this year, or even next year. You’ll need to do your own analysis, but these rates are so good that you should think about locking them in for the long term. You might like to consider one of the sharp five-year rates on offer from many of the major banks. If you want to weigh up the pros and cons, or crunch the numbers, give me a call or drop me an email anytime.
Q & A: The money or the discount?
On my home loan, I have been offered two options with my new lender: either a $2,000 cash bonus or a discounted interest rate over two years of 5.55 instead of 5.75.
Which one should I take? My loan total is $420,000 and the term will be 20 years.
This is a matter of doing your sums – in fact, we’ll do them for you. Your total interest over the two-year fixed period would be about $47,000 at 5.75%, compared with $45,350 at 5.55%. That’s a saving of $1,647. In this case, you should take the cash.
However, I might be able to get that interest rate trimmed to 5.49%, so your interest over two years would be $44,855, a saving of $2,145. In that case, you’re better off with the discount, unless you can do something smart with the cash, like reducing debt.
Give me a call and I can quickly run the numbers for you, and let you know about any other options or specials that could be on offer.
What would happen if you couldn’t work for 6 months or more?
Your most valuable asset is not your house; it’s you and your ability to earn an income. If you’re unable to work due to illness or injury, how would your family cope financially? How would you pay your daily expenses, phone bill, groceries, credit cards, or your rent or mortgage?
Some homeowners say, “I’d just sell my house and live off the proceeds.” But there are risks to this. Once you sell your house, where will you live? Rent isn’t decreasing. Will you be able to afford to live in the same area? Will this affect your children’s schooling?
If you lose everything and have to start again from scratch, how long will it be realistically before you can get back on the property ladder? Your home is an investment. Your income is an investment. Protecting your home and ability to earn an income is also an investment.
Most of us rely on our income to sustain our livelihood, lifestyle and future plans. Most of us would end up financially destitute if our income stopped tomorrow.
Matthew* was a healthy non-smoker with no family history of major medical conditions. Yet, out of the blue, he suffered a cardiac arrest, landed on his head and sustained head injuries. Jaime James, Principal Insurance Advisor at SuperCity, facilitated Matthew’s claim with the insurance cover that she had previously recommended and implemented for him. Now, his income cover is paying each month to supplement his loss of income (mortgage repayments, childcare costs, additional medical costs, etc.). It has also meant that his wife has been able to reduce her hours at work so that she can be there to support him throughout his numerous medical treatments. With the financial stress removed from their situation, the family can now just concentrate on Matthew’s recovery.
Think about how much you are worth in terms of the amount of money you will generate over your working life. For example, Max earns $70,000 and is 18 years from retirement age. That’s over $1.26 million. Kate earns $120,000 and is 30 years from retirement. That’s over $3.6 million. So, between them, a combined total of $4.86 million in potential income. If your house is a golden egg, wouldn’t it make sense to protect the goose that lays the golden egg?
“Life throws curve balls that we have no control over,” says Jaime. “However, you do have control to protect your financial well-being so that you, your family, and your business can prepare for the best possible outcome when they occur.”
*Names have been changed for privacy reasons.
Tip of the Month:
Fight invisible vampire debt
Did you know that even with a zero balance, your credit card could be damaging your ability to secure a loan?
Banks look at your available credit and factor it all in – too many cards could be sucking the life out of your borrowing power.
Let’s say you and your partner have a credit card each, with $6,000 in credit, plus a Farmers card with a $5,000 limit and a GEM Visa with a limit of $11,000. You’re super-organised, and you’re paying off the balance on your two credit cards every month, your store card has been at zero for at least six months, and your GEM Visa has just one interest-free transaction which has only $500 remaining before it’s paid off.
To most of us, that translates to a modest $500 in debt. But the bank sees that as $28,000 in potential debt, and adjusts your borrowing ability accordingly. If you and your partner can:
- Use the same credit account with two cards, instead of two separate accounts,
- Close your store card account, and,
- Pay off and close your GEM Visa,
Your available debt will be reduced by $22,000 to $6,000. That could be the difference between your loan application being declined and accepted. For more advice on giving your accounts a makeover, give us a call today.
Contact Joel
Joel Oliver
Managing Director
Level 4, 272 Parnell Road, Parnell, Auckland 1052
PO Box 37303, Parnell, Auckland 1151
0800 INVEST I 021 884 181
www.supercitymortgages.co.nz
joel@supercitymortgages.co.nz
Text “Joel” to 215 for my contact details
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