A guide to clever borrowing

A guide to clever borrowing

Not enough home buyers are seeking professional financial advice when it comes to applying for a mortgage or life insurance, says Aseem Agarwal of Global Finance.

The company opened in 1999, has offices in Auckland and Tauranga, and has helped thousands of first-home buyers obtain the mortgages they need.

“Not many Kiwis take professional advice when it comes to their finances,” he says. “They often don’t know who to turn to or who to trust. We have been here for more than 20 years, helping clients across the country buy their own home, re-mortgage, and advised them on how to pay off their mortgages as fast as possible.”

Agarwal says there are six questions he is routinely asked:

What deposit do first-home buyers need?

If you are a first-home buyer today, the banks are still open to lending to those with a 10 per cent deposit. Rules differ from bank to bank, but they are all open to supporting the purchase of a new build – a property that’s no older than six months.

Should I get a fixed rate or floating rate home loan?

Both types of loan have their merits. With a fixed rate loan, you have certainty over your home loan repayments for a set period of time. Knowing your mortgage payments are fixed for one to five years can be very reassuring. However, interest rates can go down, and that’s the risk you take when settling on a fixed rate option.

With a floating rate, you risk the interest rate going up but you will be able pay more off your loan if you receive an influx of cash. Some borrowers have both fixed and floating loans to hedge their bets and pay extra when they can.

How can I pay my home loan off faster?

I always advise borrowers to budget so they can account for all their day-to-day living expenses and then use any surplus funds to pay down their home loan.

If possible, increase your regular mortgage payments to pay more than the minimum required by the lender – because all the extra payments will help reduce the amount you borrowed. With a floating rate home loan, or a revolving credit loan, you have the freedom to make extra payments when you like.

If you have a fixed rate mortgage, you may not be able to make any extra payments to reduce the loan over a specified limit – which differs from bank to bank . So start a savings plan to pay a lump off the loan once the fixed rate period ends. Before re-fixing, it is good to get professional financial advice on your options.

What about business & commercial borrowings?

It is more complex than home lending. It’s better to seek specialised advice from an experienced and competent financial adviser and then compare your options – so you can choose the best option. Global Finance has over 20 years’ experience in supporting SME borrowings and helping them save interest on such loans.

Do I need life insurance?

In my opinion anyone who has a mortgage,  insures their life for at least the value of the home loan. Then, should the worst happen, the loan is paid off. Ideally, if there is a partner and children then insure both adults for the maximum you can afford. If a partner dies, the surviving person may need to pay for child care so they can work, or need an extended time away from work.

Too many people are not insured and the impact on a family when the main income earner unexpectedly passes can be financially devastating – and that comes on top of the grief. As long as all medical questions are answered accurately, the death benefit claim is guaranteed to be paid.

What other insurances should I consider?

Trauma Insurance should be considered because the Accident Compensation Commission only helps in the case of an accident. For example, if you have a stroke and suffer limited mobility you may need to have your home modified for wheelchair use. It’s an extreme example, but it happens all the time. Protecting your income against illness or disability can be very worthwhile.

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