From renting dreams to financial reality

Written by: Susanna Andrew

Virginia had been renting a beautiful villa – the type of home she thought she might someday own. Surely it would just be a matter of meeting her person and that dream would be a reality. It wasn’t until she turned 37 that it dawned on her that if she waited for someone else it might never come to fruition. A block of apartments yet to be built near where she lived had just come on the market and a friend urged her on. If she bought off the plans then owning her own place could be a reality. All she needed was a 101 in getting that mortgage. We asked Rachel Penberthy, co-head of lending at Simplicity, some answers to the basic 5:


What’s the difference between a fixed home loan rate and an adjustable rate?

A fixed home loan rate is where you fix your interest rate for a set period of time; this locks in your repayment amount for that specific time period. In New Zealand, fixed rates that are offered by lenders usually range between 6 months and 5 years. A floating or adjustable interest rate can change at any time – meaning it may go up or down, depending on a range of factors. Usually, floating rates are higher than what you may be offered for a fixed rate, because they give you the freedom to make extra principal repayments without penalty (unlike fixed rate mortgages, where your repayments are locked for the fixed term). This may be handy for those who receive bonuses, or have variable incomes.


What is meant by principal and interest when it comes to a mortgage?

Principal is the amount you originally borrowed, and then interest is charged against this loan amount – and the amount of interest charged depends on your interest rate, and the amount of principal you still have remaining that’s not yet paid back to the lender.  When you make your regular loan repayments, part of this is applied to the total interest charged for that period and the remainder is applied to paying down the principal. It’s usually the amount of principal that you pay each repayment period that varies depending on your loan term, as you must pay the total interest charged during that period in full.


When you look at the term of a mortgage, how does this work – for example a 15 year vs a 30 year term?

The amount of principal you pay back each repayment period is determined by the loan term. So for the shorter 15 year term, you’ll be paying back more principal each repayment period, in order to pay down the loan quicker than the 30 year term. With the shorter term, you’ll also end up paying less interest over the full term, given the impacts of compounding debt – with 30 years, your loan (debt) has longer to accrue interest without principal being paid back in full, than the 15 year term where you’re paying down principal quicker.


What do I generally need to qualify for a loan? And how much am I able to borrow?

There are a range of different eligibility criteria for different mortgage providers, including the big banks (who will each have their own) and non-bank lenders.
To apply for a Simplicity First Home Loan, you need to be a Simplicity KiwiSaver member and a first home buyer. Our online calculator is a helpful tool to see how much you may be able to borrow. We have a bunch of other eligibility criteria that you need to be able to meet, which you can also find on our Home Loans page of our website.


How much of my KiwiSaver balance can I take out for a first home loan?

If you meet the KiwiSaver First Home withdrawal criteria which are available on the IRD website, you can withdraw almost your full KiwiSaver balance. You’ll just need to leave at least $1,000 in your KiwiSaver account, and you can’t withdraw any amounts transferred from an Australian super scheme.

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