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Mortgage Question

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Topic: Mortgage Question

Posted By: kebakat
Subject: Mortgage Question
Date Posted: 24 October 2008 at 7:58pm

We refixed our mortgage for 2yrs back in June for like 9%. We also only pay the minimum amount as it's all we can really afford to.

However with the interest rates going down and down, and I know they are most likely to go down again in december DH and I have been talking about the possibility of ditching our bank and moving to kiwibank probably early next year if we do it, to drop down lots in the interest rate would save loads of $

However, because we would be in the middle of our fixed term there would be financial penalties. Has anyone done this before or have a clue how big the penalties are?? When I rang BNZ home loans they couldn't give me an answer and said I had to go talk to my account manager which of course I can't do til Tues at least. But I'm impatient and want to know now!

Replies:

Posted By: FionaS
Date Posted: 24 October 2008 at 8:04pm

Hey Stacey. I'm not 100% sure but a friend of mine just tried to change things around mid-way through the term and was quoted a penalty / admin free of $650!!!!!!!

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Mummy to Gabrielle and Ashley

Posted By: Kellz
Date Posted: 24 October 2008 at 8:05pm

Yes there can be. All I realy know is that wizard (who we are with) dont charge the fees that other places do, so know that there are likely to be fees but dunno how much!
Have you looked at NZhomeloans? Several of our friends here have recently changed to them.

Posted By: Mum2ET
Date Posted: 24 October 2008 at 8:10pm

DH works for ASB and we had our mortage on a fixed 2 year rate (was fixed earlier in the year when the rates were really high). We have refixed our mortage at the new interest rate yesterday- we had to pay a penatly of $1600 (yes I was shocked at how much the penatly was), but the gain that we get having changed far outweighted the charge.

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Mum to
Ella (5) and Tom (2)

Posted By: busymum
Date Posted: 24 October 2008 at 8:10pm

I'm pretty sure NZ home loans is the face for KiwiBank.

We recently broke a fixed term loan, it will depend how big yours was compared to ours but I'll PM you some details.

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Posted By: kebakat
Date Posted: 24 October 2008 at 8:14pm

I know the penalties are based around how big the loan is. Ours isn't that huge at 160k. But just moving from 8.2% to 9% which we did in june added $55 a fortnight to our repayments so it's really going to be a case of if we will be better off.

Posted By: kebakat
Date Posted: 24 October 2008 at 8:15pm

Oh I'd appreciate that Teresa!

Posted By: peachy
Date Posted: 24 October 2008 at 8:32pm

Stacey we have recently looked into changing to Kiwibank, but it was going to cost us a fortune to break one of our fixed term rates. We have our mortgage split and 50% of it has just come up this week for re-fixing. I was pleasently surprised to hear today we managed to re-fix at 7.94%. Not what we did have it at, but still better than the 8% + rates they have been offering!

Must admit though our mortgage is a fairly decent figure!

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Posted By: busymum
Date Posted: 24 October 2008 at 8:36pm

Once you've done your figures, see if your bank can step up to the competition ie. we're thinking of changing banks cause this is what they can offer us etc etc, is there anything you can do to compete?

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Posted By: kebakat
Date Posted: 24 October 2008 at 8:42pm

I'll be doing that trick too. I did that in June when our mortgage came up, said I was switching and they almost matched what I wanted.

Posted By: CuriousG
Date Posted: 24 October 2008 at 9:02pm

There would be both the refinance fee plus the "break fee", which the difference in Interest that you would have had to have paid vs the current rates.

I am pretty sure that if you broke it at 9% and they can only lend that money out to someone else at say 7.5% (new market rate as such), you have to pay that 1.5% difference on the remaining time on your loan. You would need to work out what that was (although your a/c manager can figure that out with one of their whizz bang systems easy).

We also fixed ours for 2 years in June and like you, its at 9.2%.

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Posted By: AnnC
Date Posted: 24 October 2008 at 9:04pm

yes if your fixed rate is higher than whats on offer you will pay a penality - if you were on 9% and want to change to 8% you will pay - the other way around there is no penalities.

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Ann

Also Mum to Josh (15) and Brooke (10)

Posted By: emz
Date Posted: 24 October 2008 at 9:07pm

Sorry I have no idea Stacey, but just be thankful you're not one of our friends who had to fix theirs at 10%. If they had been in their home 4 months earlier (which they should've been but vandals broke in and ruined the interior the day before they were due to move in) they would have had between 8.5-9%. That's on a 300k mortgage so a huge difference

Posted By: T_Rex
Date Posted: 25 October 2008 at 1:52am

I think the formula for working out the penalty should be written in the terms and conditions of your loan. You would have got given that by the bank when you signed up. Although in saying that, I got DH to look for it the other day for the same reason as you and he couldn't see it in ours. Might have been a boy look though

so I've asked him to send me a copy of them. I think its worked out as a function of the difference between the rate its fixed on and the new rate, and the total amount owing but i'm not sure how. It might possibly also be affected by how long you have left on your term. If you do find out the formula, please share

.

ETA: turns out google is your friend... I found this:
http://www.kiwibank.co.nz/about/pdf/home_loan_tac.pdf (sorry, don't know how to post a link). Scroll down to page 13. Good luck finding the necessary details! It will be pretty similar between banks I'd expect.

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Posted By: Jennz
Date Posted: 25 October 2008 at 5:51am

Just saw this on stuff

http://www.stuff.co.nz/4738849a11.html - Stuff link

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Jen, Charlotte 7 & Kate 3

Posted By: CuriousG
Date Posted: 25 October 2008 at 6:29am

I just had a read too. Its not looking worth the charges IMO.

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Posted By: kebakat
Date Posted: 25 October 2008 at 8:40am

Even though that article says its not worth it I'm still going to investigate it myself - I don't necessarily believe everything the media tells me

Posted By: Danaj
Date Posted: 25 October 2008 at 9:26am

I used to own a place in Akl and had the same prob. I went shopping around to other banks and it was surprising how many of them would assist in the costs of changing over just to get the business. It depends how desperate they are to get your business and with the market slowing, you might be in a good position to negotiate with a new lender. I was with Nat bank but they're costs have gone through the roof ever since ANZ took over. We'll be going with Kiwibank next time round which is hopefully next year.

Think outside the box. Just because one bank says no, doesn't mean the next one wills say the same thing. You're the customer. Mortgages are tailored these days so I can't see any reason why you shouldn't be able to find something that reduces your costs. Kiwibank are good and have good rates but my research has found that they're not the most flexible bank whereas the others can be as they're trying to compete with Kiwibank.

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Posted By: kebakat
Date Posted: 25 October 2008 at 9:29am

When our mortgage came up for renewel kiwibank were really good when I spoke to them, we only endedup staying with our current bank because they pretty much matched the rate so that saved a bit of hastle.

Posted By: T_Rex
Date Posted: 25 October 2008 at 11:47am

I just worked this out for us, using the formula in the link i posted before. It would cost us $5000 to do (the difference between the fee and the interest savings). I think I'll wait it out!

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Posted By: kezplanet
Date Posted: 25 October 2008 at 2:07pm

The two examples given on the stuff link related to breaking a fixed term rate and re-fixing with the same bank. If you are changing to kiwibank:

Refinancing package

Our great value refinancing package could save you up to $1,200. Here’s how in a nutshell:
You'll pay no legal fees because Kiwibank’s legal transfer service is free. Using your own lawyer could cost around $600 There's no registered valuation required, unless you're using an apartment, townhouse or leasehold property as your security. This will save you around $350 You'll pay no application fee, saving around $250 There are no fees on your everyday banking. Service fees may apply.
Our refinancing package is completely free for residential property loans that tick the following boxes:
The loan is over $50,000 It's less than 80% of the current capital value of the residential property provided as security It can be transferred to Kiwibank without changing who owns the security It's secured by two or less securities The refinancing documentation is not signed under a power of attorney The refinancing doesn't form part of a series of same day transactions.
If you're using an apartment, townhouse or leasehold property as your security, you'll need to obtain and pay for a registered valuation. If not, Kiwibank's refinancing package won't cost you a cent. The refinancing package is not available for business banking customers. Your existing lender may charge break costs or discharge fees and these are not covered as part of the refinancing package. If you want to use your own solicitor, you can still use the refinancing package, but your solicitor's fees and costs are not covered as part of the refinancing package. You will need your own solicitor if the loan cannot be transferred to Kiwibank without changing who owns the security, where the refinancing documentation is signed under a power of attorney or where the refinancing forms part of a series of same day transactions.

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Kerryn, Mum to
Ashlyn(29/3/04), Anastasia(1/11/05) & Abigail (24/02/09)

Posted By: RunningT
Date Posted: 29 October 2008 at 9:33pm

We are also fixed at around 9%... I am gutted we didn't fix for a shorter period.. it seems like the banks always win.

I wonder where rates will be in 12 months time when we are due to refix...

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Posted By: KiwiL
Date Posted: 29 October 2008 at 11:36pm

I haven't read all the replies Stacey, but I used to work for a Bank and dealt with these questions.

I am not sure what all the banks do, but our one used the following penalty:

Basically work out the amount of interest you would pay on your loan at your current rate for the remainder of your term. For example, if you had a mortgage of $150k with 1 year remaining it would be:

$150,000 x 9.00% x 1 (year) = $13500

Then the bank works out what they would earn if they had to lend your money to someone else at today's interest rates - they would have to use whatever rate is applicable to how much longer you are fixed for - in the example, 1 year. Let's say the one year rate is 8%pa:

$150,000 x 8.00 x 1 = $12000

The difference, $1500, is what the bank would lose by having to lend your $150000 to someone else at a lower rate. So that would be your penalty.

My calculation is a little off, because in reality, the interest you would pay over your remaining year would be decreasing as you made repayments, but this should help you get a rough figure.

Another example:

1) $200,000 at 9.5%pa for 18 months =
$200,000 x 9.5%pa x 1.5 = $27000
If bank had to lend your $200,000 to someone else at 7.99%pa then:
$200000 x 7.99%pa x 1.5 = $23970

Difference of $3030

What you then have to work out is whether you will save that and more if you were to switch. Some banks (not the one I work for) also have extra "admin" charges for early repayment.

I would call your bank and tell them you are thinking of switching and what would your penalty be. They should be able to give you this information over the phone.

To be honest, in most cases you won't make much of a saving as the penalties are "real" costs. But if it means you are switching banks then there could be extra benefits. Banks are really competitive at the moment so should contribute to your switching costs (as a valuation may be required), should offer you competitive accounts and may reduce their interest rate as well - never go by the face value. If you can negotiate a good deal you may be able to save money in the long run.

Good luck - and PM me if you want any more information.