Working with a mortgage broker in New Zealand

• What to expect from a mortgage adviser
• What happens after pre-approval mortgage
• How lenders structure their mortgages
• How the OCR affects your mortgage

Mortgage advisers are a go-between who deals with banks or other lenders to arrange a home loan for you. CoreLogic Head of Research, Nick Goodall, says with the interactions it’s had with banking organisations, around 60% of mortgages are brokered by mortgage advisers. These finance advisers work on commission typically paid by the lender, a percentage of the amount loaned. Some advisers may also charge a fee to the borrower as well so you should ask about this early on. Ideally, you’ll have someone recommended to you by friend or family or your agent.

Questions to ask potential mortgage advisors

The Financial Markets Authority, which regulates mortgage advisers, suggests some key questions to put to mortgage advisers at the outset:

• Do you offer loans from a range of lenders?
• How are you getting paid and does this differ between lenders?
• Why did you recommend this loan to me?
• Can you show me a couple more options including the cheapest cost?

One of the main areas a mortgage adviser will help you with is getting pre-approval on a home loan. They’ll go through your bank accounts, examining your spending habits, your savings, debt and assets before sending the bank the relevant information. Note, that some banks won’t work with mortgage advisers.

A loan pre-approval, says Mortgage Lab, is an offer, typically known as a Letter of Offer of Finance, from a bank or lender indicating the maximum amount they’re willing to lend.

The offer will often have conditions attached, says the First Home Buyers’ Club. These conditions will include the buyer organising a registered valuation for the lender and a copy of a signed sale and purchase agreement that they approve of.

Jarrod: No paperwork, but you should have a good handle on your personal finances including a budget. Payslips would help if you don’t have a clear idea of how much you earn. The first meeting though is a “getting to know you and what’s important meeting.”

Jarrod: When you’re pre-approved and you come across a potential house you want to put an offer on, it’s good practice to email the property listing to your mortgage adviser to check for suitability. Your pre-approval is general and may rule out certain properties like plaster homes, rural properties or new builds. A good adviser will be able to provide property specific feedback once they’re viewed the listing.

Jarrod: Now it’s time to engage a lawyer to help you draw up your offer. Most good advisers will be aware of the conditions to include but it’s vital a lawyer helps at this stage as the contract is legal in nature.

Jarrod: Most people, without guidance, will fix their mortgage for one term and will often do so based on the cheapest rate at the time without any thought as to what may happen at the end of the fixed term. I’ve always split mortgages over several terms to spread the interest rate risk with a floating component (offset or revolving credit). This allows the client to make lump sum payments without paying a penalty and to offset interest with funds that may be sitting idle in their transactional and savings accounts.

Jarrod: This depends on how much you’re borrowing and the interest rates being used but, as an example, a $500,000 mortgage at 6.5% over 30 years will cost you $1,137,186. The same mortgage over 20 years will cost you $894,054.

Jarrod: If you want to pay your mortgage off more quickly there are products around to help you minimise the interest paid. These include offset mortgages or revolving credit mortgages. Any spare cash you have lying around in your other bank accounts is offset against the mortgage to minimise interest. These products are better for those with high disposable incomes though savings can be made for those with smaller disposable incomes.

To pay your mortgage off faster, put simply, you need to increase your repayments. A personal budget is your best friend here, something your mortgage adviser should be able to help with.

Jarrod: Mortgage rates don’t always go up with an OCR rise. Banks are regularly forecasting what the OCR is going to do so you might find that in some instances, the OCR rise has already been factored into the rates. And, sometimes, the banks won’t pass on the full cost of the OCR rise either as we’ve experienced this year.