Buying guide

What's the best way to get a mortgage in NZ?

Learn the ins and outs of mortgages in New Zealand.

Getting a mortgage – that moment you realise you're truly an adult – is one of the most important stages of buying a home in New Zealand.

However,the process is something that many Kiwis worry about. How do I secure a mortgage? Which loan type is right for me? What happens if I can’t make my mortgage payments?

While you’re right to be careful – no one should jump into any type of loan without thinking – if you do your research, you’re putting yourself in a strong position.

In this article, we’re going to run through how mortgages work, where you can get them, and some tips for getting approved for a mortgage.

How does a mortgage work in NZ?

If you’re wondering what the difference is between a mortgage and a home loan, there isn’t one. They’re two words for the same thing, and we’ll be using both terms interchangeably here.

Essentially, a mortgage is a legally binding debt between you (the person taking out the loan) and the creditor/lender (the entity loaning you the money – for example a bank).

When you apply for a mortgage, you ask the creditor to lend you the money to pay for your property purchase. In exchange, you’ll pay back the money plus interest at regular intervals over a pre-determined period of time (known as a term). In NZ this term can be up to 30 years with most creditors

Technically, until you pay off your mortgage, the creditor owns the property. There are a variety of different home loan types you can choose from, as well as options regarding interest rates – more on how to choose these later.

A mortgage is a legally binding agreement.

The best way to get a mortgage - who can help?

There are different ways you can go about getting a mortgage, but the two most common are:

Going to a mortgage broker (now often referred to as mortgage advisers)..
Going directly to a creditor, most likely a bank.

Here are some benefits and drawbacks of each approach.

The pros and cons of using a mortgage broker

Pros:

They’re usually free – in NZ, you rarely pay anything for using a mortgage broker’s services.
They can help with the paperwork – you’ll need to draw together a few pieces of evidence when you apply for a home loan, and a mortgage broker can help you do this.
They can help you decide – if you’re not sure what type of home loan is best for you, mortgage brokers can walk you through your options and what they’d mean financially.
They can negotiate for you – because they understand application criteria and interest rates for different creditors, they might be able to negotiate a better deal for you than if you went directly to a bank.

Cons:

You might not see all your options – mortgage brokers are paid by lenders, and so might try to steer you towards borrowing from specific lenders. This may mean you don’t get a fair idea of the range of products out there that are suitable to you.
You need to find a good one – as in any profession, you’ll come across mortgage brokers with different levels of experience and expertise, so it can add time to your process in finding the right one.
There may be some costs involved – if you don't ultimately go with one of their options , there’s a chance you’ll still have to pay a fee.

Mortgage brokers can help you navigate the process of taking out a home loan.

The pros and cons of going directly to a bank

Pros:

You’ll have options: banks in NZ tend to offer a variety of mortgage options to suit a range of financial situations.
You might get a great deal: banks really compete with each other in the mortgage space, meaning they sometimes throw in extras to sweeten the deal. This could include giving you discounted insurance or financially contributing to your legal costs.
You can negotiate: just because you haven’t got an adviser, doesn’t mean you have to accept the first loan terms the bank gives you – you can always try and get a better deal.

Cons:

Cautiousness: if you’re worried about your credit history, it could be best to go to an adviser – banks tend to be more wary and might turn you down.

Whichever route you decide to take, good questions to ask when taking out a mortgage include:

What are the features of each of your home loan products?
What are your best interest rates at the moment?
What fees apply?
What penalties would be involved if you break a home loan (by switching to another loan provider)?
Can you pay lump sums off your home loan from time-to-time? Are there fees involved in doing this?
Can you lock in an interest rate? For how long? What would they advise here?
What information do you need to provide for your application?

Instead of using a broker, you can go directly to banks.

Getting approved for a mortgage: a few top tips

In home buying jargon, what you’ll want to do is get ‘pre-approved’ – this means you’ll have a good idea of how much you can borrow to make an offer on a house.

When you seek pre-approval, the lender will want to see some details around your budget, including:

Your income: a minimum of three months of your most recent payslips, or recent financial statements from your accountant if you’re self-employed.
Your expenses: this is to gauge what could impact your ability to meet repayments on the loan.
Your debt: this will include credit cards, overdraft, hire purchases and similar. They’ll want to know what you owe, and when you expect to remove these debts.
Your deposit: you need to prove you have enough saved up for your deposit. This will likely involve bank statements, details around KiwiSaver (if this is your first home) and anything else contributing to the deposit sum.

To improve your chances of getting pre-approval quickly, it will help to:

Have all your documents ready: the less time you have to spend searching around for financial statements, payslips and KiwiSaver details, the faster you and the lender will be able to move.
Clear up your credit history: banks will usually need you to pay any outstanding defaults before considering your application.
Be prepared to answer questions: if you have paid defaults within your credit history, the bank will want to know why you defaulted originally.
Get your bank statements squeaky clean: the banks will review your financial habits over a period of time in terms of income vs. expenditure. Are you managing your finances carefully? Are you avoiding unauthorised overdrafts and dishonours?
Get your debt down: from a lender’s perspective, the less debt you have the better.
Are you putting money away?: do you have some funds put away for unexpected expenses? It will play well with the banks if you do.

*We hope this article has provided some helpful information. It's based on our experience and is not intended as a complete guide. Of course, it doesn’t consider your individual needs or situation. If you're thinking about buying or selling a property, you should always get specific advice.