Thinking of Building? Read Kylie’s Story First

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Kylie and her family of five went through the options of buying and renovating and finally decided to build. But how would they service two mortgages? Kylie shares her insights.

 

We’ve had pre-approval to purchase an existing home for a few years now and haven’t had much luck finding anything.

 

The market is very competitive and, because we had an existing property to sell first, any offers we made had to be conditional on selling that property. With cash offers being put up in competition to us, we felt we didn’t stand a chance.

 

We considered selling our property first. However, with a lack of rentals available in Wellington we were concerned that we would end up homeless. Plus, the animals would make that hunt for a temporary rental even more difficult.

 

We also looked at renovating. However, with estimates at over $80-$100k we finally came to the decision that we might as well build.

 

This led to the inevitable question: How could we afford to pay two mortgages?

 

That’s where Brendon, my trusty Velocity mortgage broker (who also happens to be my boss) stepped in.

 

We’ve recently secured a “turnkey” build in Kelson with a small five per cent deposit from the equity available in our existing property.

 

A turnkey is where you place a small deposit down, and only pay the remainder once the property is complete, hence the name “turnkey”. This can be a slightly more expensive way of building, however, there are no additional costs involved, and no overheads to worry about. Our contract even includes the letterbox and planting, and the only things excluded are the curtains.

 

The downside is that the plans have already been signed off with the council, so we have no control over the layout of our new home. However, we can choose the colours, kitchen, carpet and so on. We had a number of plans to choose from, so we picked one that suited our needs.

 

Still, there have been some risks involved.

 

We haven’t sold our existing home. So if the market crashes when it comes time to selling, we’d be in trouble. Worst case, we’d lose our deposit or have to go to court (unlikely, however, let’s not rule it out!).

 

This risk was clearly laid out to us (thanks boss!), however, even if we sell our house for $100k less than the current value, we would still be able to complete the transaction. So we have decided to proceed, knowing that in a slow market, or even if a market correction occurred, we should still be in a position to sell and move on.

 

Another issue is timing the completion of the build with the sale of our existing property.

 

We’re working closely with the agent involved with the new build, and he’s suggested that we put the house on the market once the windows are installed in our new build. We don’t want to have to move twice, however, we realise we may be homeless for a short period of time. Hey, Mum and Dad! Need some borders?!

 

Regardless, we are going to try to line up all the moving parts as best we can.

 

We’re looking forward to our double-glazing and toasty warm home, as well as having an extra toilet to share between all five of us!

 

No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

ANZ Wants to Warm Your Home … Interest Free

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Many Kiwis live in homes that are simply too cold, damp and breezy. ANZ have heard our cries and are offering homeowners a sweet little deal to warm your wallet as well as your castle.  

 

In recent years, we’ve all cottoned on to the fact that damp, draughty homes are not acceptable. This has seen much discussion in the media around rentals and the need for landlords to stump up and properly insulate their tenants’ homes.

 

However, the question of house quality spans beyond rentals to owner-occupies as well. In 2018, ANZ pledged $100 million worth of $5000 interest-free loans for ANZ customers to insulate their homes. The great news in 2019 is that ANZ’s Healthy Home Loan scheme to improve the health of New Zealand homes continues.

 

Whether you have a reasonably new home, are renovating your existing home or building a new home, ANZ's aim, it seems, is to encourage you to have a healthier home. And, of course, it’s also an enticing carrot to get you to switch allegiances with your banking provider.

 

So, what are the three aspects of your home that are considered under this loan scheme?

  1. Dryness (ventilation, dampness)

  2. Warmth (heating, insulation)

  3. Safe & Efficient (smoke alarms, water, energy-efficiency)

 

What are the benefits of a Healthy Home Loan with ANZ?

  • Interest rate discounts (off standard rates)

    • Fixed rate discount of 0.70% p.a.

    • Floating rate discount of 1.00% p.a.

    • Flexi rate discount of 1.00% p.a.

  • They'll waive the account fees on your Flexi Home Loan, Freedom (everyday) Account & Personal Credit Card

 

To get a Healthy Home Loan with ANZ, the first step is to get your Homestar Rating of 6 or higher. There are two steps to this:

  1. Complete a HomeFit online check (www.homefit.org.nz)

  2. A HomeFit assessor will visit your property and, if it's up to scratch, will provide you with a HomeFit Certification. The assessors visit will cost approximately $300.

 

If you're unsure if this package, or ANZ full stop, is the right move for you, give us a call and we can help you understand the details and size it up to make sure it will fit your needs.

 

No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 


Oops! I Bought an Uninsurable House!

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Wellington leads New Zealand in coffee, craft beer, gin, bucket fountains … and the very best fault line! We win at everything. And now also add high insurance premiums to that list. Yay!

 

Historically, our insurance premiums have not reflected the fact we’re living on such a lustrous fault line—but they are starting to. Insurance companies are very nervous about what an earthquake in Wellington would cost them and have started to prepare for a shaky day ahead.

 

Of course, they prepare for that day by putting premiums up and by making sure they have a comfortable level of exposure in Wellington i.e. each company will only take a certain number of commercial buildings and/or houses.

 

What this means for me as a homeowner/buyer/seller is that I need to give more thought to my house insurance. Premium increases are a given, but the good news is that home insurance is still available.

 

When buying we obviously just need to plan ahead of time by arranging cover for the new house.  

 

Marie from Thorners says it best: “Don’t expect to ring an insurer and get cover sorted the day you take possession of your new home!” 

 

We encourage people to make sure they can obtain insurance cover before they enter into an agreement to buy a property. This includes undertaking your due diligence when buying any house to understand its full history, particularly if the property has previously suffered form earthquake damage. Irrespective of whether you think it might only be cosmetic, before your cover is confirmed, insurers will ask for a lot of information like claim reports, scope of repairs, evidence the repairs have been completed and so on. All of this takes time, so don’t leave it to the last minute.

 

Velocity has a range of companies we have relationships with to help with house insurance, so please ring if you are running into difficulty or need a second opinion. 

 

Graham Goodisson is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 


When the Insurance Company Says NO!

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What’s this? Even Brendon got turned down by an insurance company?! Here’s how it happened and some takeaways for us all.

 

My insurance company just said “no” to me. I am not happy. I am a current client of theirs and I sell their products to my clients.

 

I have personal insurances in place, but, in my annual insurance review, my circumstances had changed enough that I needed a bit or a re-org. I have existing cover (by this I mean life, income protection, trauma and health covers) at a number of providers and I was going to consolidate these and save a little money.

 

But when I applied I was declined. 

 

The reason for this was to do with my medical risk. 12 years ago I had a "neurological event" that looked a bit like a stroke. After investigating, they found that one of my heart valves "leaked" a bit (in the trade, it’s known as a PFO) I have had it all my life and, at the time, the best medical advice was to let it be. It wasn't a major issue—apart from the fact it could let an occasional blood clot through and in to my brain!?! Time has moved on and it seems that the medical advice may be changing. So, due to this uncertainty, my insurance company doesn't want to take the risk.

 

My immediate response was anger. 

 

How dare they? Don't they know who I am!? As well as the fact that I run ultra-marathons and so am pretty fit and healthy! I thought I was a pretty good risk. However, I do understand their rationale and I am now looking in to my medical options.

 

As well as working with my GP and a referral to a cardiologist, I may well use an expert’s (best doctors in the world) second opinion service known as "Best Doctors" that comes with my insurance. My health insurance may get a work out in the months to come. 

 

Watch this space.

 

Finally, some take homes from my experience:

 

There are two times when an insurance company might say “no”. One is when it comes to getting the cover in place. The second is at claim time. Trust me, it is far better to get a “no” at application time than at claim time.

 

At the risk of turning my little personal anecdote in to a sales opportunity …  our job at Velocity is to get the best cover, at the best price, and to ask all the questions at the start to ensure that, at claim time, the money arrives when you need it most.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 


Fixed vs Floating

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Now is a great time to be refixing a home loan. As long as you have sufficient equity in your property it is very likely you will be fixing a home loan for a rate under four per cent.

The official cash rate has just reduced to an all-time low of 1.5%. This will mean some downward pressure on rates. However, it is likely the markets have priced some of this in already. At the time of writing, there has been no movement in terms of home loan rates, however, we wait with some anticipation.

 

The only upward pressure on rates seems to be the Reserve Bank consultation to increase the capital that banks are required to hold. If/when this gets agreed to, it will affect the profitability of banks and, therefore, is likely to see some upward pressure on rates. However, this seems like the only force capable of driving rates north right now.

 

On a related note, when an adviser from Velocity sits down and reviews a client’s home loan structure, it is very rare that there isn't some 'tweak' we can make to improve that client’s situation. Sometimes a major overhaul is required and, with interest rates this low, overhauls are common.

 

I hope that before your fixed rate rolls off, we will be in contact. However, our system isn't (quite) foolproof, so if we do miss you, please don't hesitate to make contact and we will chat through options over the phone or arrange a quick review meeting.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

 


Broke or Broken: Must We Choose?

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What’s more important, saving your pennies or fixing your dodgy knees? What about that lower back that complains every time you tie your laces? Lance discusses that painful tension between financial and physical fitness.

I recently received a link from a chiropractor entitled, “Is your debt making you sick?” My initial thought was, “Hey, chiropractor! Stay in your lane and leave the finance talk to the people in finance!”

 

My second thought was, “Lance you are a guy in finance offering thoughts to people about wellness.” Point taken … and ignored (I do have a Diploma in Exercise Science … just saying … now focus!).

 

In New Zealand, we play sports, and our national sport involves people running as fast as they can as often as they can straight in to other people running as fast they can … for 80 minutes! We also have an absolute love for the outdoors, which is fantastic, but can physically take its toll. Now, the long-term effect on our bodies from such activities can be tremendous, and often these continue to plague us long after we’ve hung up our [insert apparatus here].

 

I recall playing rugby and seeing the older spectators hobble along the side-lines and saying to myself, “They should have stopped playing much earlier than they did.” Yet there I was in my late 30s doing just the same thing and not learning the same lesson.

 

How many times in a day from the time when we first get out of bed or we get up slowly from a meeting or we go to pick up our kids and stop short because our back is sore or neck is out or… so on? Do we feel the on-going effects from prior activities?

 

I know that a lot of us simply put up with this, as we don’t want to pay the price to remedy these physical ailments. When did we decide that our physical wellbeing was not a financial priority? And what is the true cost of doing nothing about it?

 

I would suggest that as soon as it interferes with your day-to-day or prevents you from doing simple or much loved activities—such as having fun with your children, grand kids or walking your dog—then it’s time to calibrate that Kiwi “she’ll be right” mantra. Spend the money for goodness sake! Your body is a temple. Unfortunately some of us treat it like it’s the temple of doom!

 

In exercise science it is about peak performance in sport. Should we not have the same deliberate approach to our day-to-day wellbeing? Why do we settle for less of our body if it gets in the way of doing the things we value most?

 

I can in no way tell you what to spend your money on, and, as a husband with two kids, I understand the need to prioritise finances. My thought today, however, is for you to at least investigate if there is any way of easing the pain.

 

What is the cost of doing something versus the very real cost of doing nothing at all?

 

As for me, I cannot help myself but play sport, run, whatever. I have changed from the high impact sports of my younger years to activities that are “easier” on the body. This has dramatically improved my day-to-day work and family life, while still satiating my thirst for competition and exercise.

 

I recommend having this conversation with an expert, as the remedy may be simpler and less costly than you think.

 

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

 

Insuring Your Wellington Property

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We’ve been talking about “the big one” hitting Wellington for decades and it seems the insurance companies are more worried about it than most. Stevie explores what this worry means for insuring your home in the capital.

 You may have heard last week’s announcement from IAG (and its associated brands) that they are further limiting their new cover in the Wellington area. If you’ve lived in the Wellington region for a few years, you will know that this isn’t particularly a new announcement. Since the Kaikoura earthquake, IAG undertook a conservative (a.k.a. risk averse) approach to Wellington homes.

 

It is, however, a good time to discuss what this means for you as a Wellington homeowner.

 

Firstly, we’ve spoken to our Fire & General Insurance Brokers and it is business as usual. There are still companies that happily insure Wellington homes.

 

Secondly, we’ll be keeping our finger on the pulse for any changes with other insurance companies and keep our clients informed as always.

 

Finally, if you are concerned about the insurability of your home or rental properties, give us a call and we’ll talk it through with you.

 

A Quick Guide to Personal Insurance

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Insurance can get confusing. Huge policy documents, insider lingo, fine print everywhere. It’s supposed to provide peace of mind, but can instead just play havoc with even the sharpest samples of grey matter.

So, here’s a 101 guide to understanding your personal insurance.

 

In New Zealand, there are four things a person can insure themselves for:

 

1. Life

 

Why? To repay debts, cover funeral costs and give your loved ones the financial freedom to properly grieve.

 

Who? This pays a lump sum to your estate or the person of your choosing.

 

2. Trauma

 

Why? Give yourself space to recover, whether or not you’re off work for a prolonged period of time.

 

Who? This pays a lump sum to you if you are diagnosed with a specific illness.

 

3. Income Protection

 

Why? Unfortunately the bills still come in if you’re unable to work due to injury or illness. This will pay a percentage of your income (or mortgage repayments) until you’re able to return to work.

 

Who? This pays you a monthly sum.

 

4. Health

 

Why? If you need non-acute surgery, you can skip the public queue and go straight to a private hospital.

 

Who? This pays the medical professionals that are looking after you.

 

Finally, it’s important to ensure that your cover is relevant to your life. Here are a few examples of life events that may impact the relevance of your cover. If any of these apply to you, give us a call!

•          You have new additions to your family

•          Your kids leave home

•          You get married and/or divorced

•          Your job changes

•          Your salary changes

•          You have had any health issues (more than just a GP visit)

•          You have set up a new company or trust

•          You have bought or sold a property

No investment decision should be taken based on the information in this blog alone

Is a Prefab Home Your Ticket onto the Property Ladder?

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Prefab houses are cheaper, quicker to build and have fewer budget blowouts, but banks haven’t given them much love … until now. Kylie explains…

Imagine owning a patch of land and one day a truck backs up, plonks down your new home and, voila, you’re a homeowner. Although a prefab home can seem like a friendly and easy entry into the property market, your bank most likely has had a different opinion … up until now. 

 

Prefab houses have been notoriously difficult to fund because there has been no security for the bank to lend against in the beginning. You’ve been required to pay for the dwelling before it was delivered to the site. Historically, this meant that it was out of reach for most first-home buyers—unless parents had enough equity to pay for the dwelling up front against their property.

 

But there’s a glimpse of sunshine peaking out from behind the dark cloud hanging over the prefab home dream. Westpac have recently completed a successful nine-month pilot in both Albany and Invercargill on a new build product called Prebuilt—a dedicated mortgage product aimed at helping Kiwi’s get into prefabricated homes. They’ve just announced this product and are beginning the process of rolling it out to all of New Zealand.

 

So, watch this space.

 

The prefab home market is expected to grow over 200 per cent in the next year. So, with Westpac’s new product on offer, the prefab homes should be a hit with both buyers and builders.

 

But what exactly is a prefab home?

 

Prefab homes (prefabricated homes) are built under controlled conditions, usually in a factory, and are transported to their final location by truck.

 

This method of building provides several benefits above traditional building methods:

·      They can be cheaper and their costs are tightly controlled (so no project blowouts!).

·      The build time is also much quicker than your standard build, with some prefab homes taking just 18 weeks.

·      The overall cost is around 15 per cent less than a standard build.

 

The prefab home designs have also come a long way in the last few years, with trendy and modern options on offer.

 

So dream on … and chat to us about the options!

 

Fixed vs Floating

Mortgage interest rates

Is it a case of making hay while the sun shines? And what of this talk of banks having to increase their capital? Is it the spanner in the works we’ve been waiting for? Brendon explores.

 

There have been no material movements in interest rates since last month and we are still sourcing short term fixed rates for less than four per cent (caution: criteria apply!!!).

 

Banks also seem pretty upbeat about giving away money in order to incentivise new business. As always a bit of competition in this space can be helpful to give us lenders favourable rates.

 

So, can we expect rates to increase from the lows we’re enjoying?

 

Of course, we don't have a crystal ball, however, many of the drivers of interest rate rises seem fairly mute right now—these being the Reserve Bank forecasts of inflation and overseas interest rate movements.

 

The main uncertainty that we are keeping an eye on is the Reserve Bank’s desire to increase the "capital" that banks hold. If this is actioned at the suggested levels, we are being told it will have a significant impact on the profitability of banks, which will only mean one thing: increased interest rates. So, watch this space.

 

What are others doing right now?

 

Most of our clients are making the most of the great one- and two-year fixed rates at the moment. And many are keeping some flexibility and focusing on getting rid of the debt by increasing their payments or using revolving credit or offset accounts to actively manage their debt. 

 

With rates so low, should I break my current fixed rate and lock in a lower one?

 

There are a number of factors to consider here. One really useful tool is this break-cost estimate calculator from Interest.co.nz. Whenever you break a fixed loan there is a risk of break fees. This calculator will estimate those for you (but do note that it is only an estimate).

 

https://www.interest.co.nz/calculators/mortgage-break-fee-estimator

 

If this is something you’d like to consider, we can work through the options and fine print with you.

 Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

KiwiSaver: Have the Conversation

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Is your KiwiSaver working as hard as it could for you? Is it time to tweak the dials to maximise your investment or make things more conservative?

 

KiwiSaver is a voluntary savings scheme set up by the government to help New Zealanders save for their retirement. You can choose to contribute 3, 4 or 8 per cent of your gross (before tax) wage or salary to your KiwiSaver account. Your employer must contribute as well—at least 3 per cent of your gross salary.

 

There are a few instances when you can use your KiwiSaver before retirement—these are known as “time horizons”.

 

It could be for:

·      your first home (where you can withdraw all but the $1000 kick start),

·      perhaps you’ll be emigrating (there are some timeframes around when you can take that money out),

·      severe hardship (let’s hope it doesn’t come to that), or

·      when you reach 65 years of age.

 

The key here is to ensure that your KiwiSaver is on track to maximise your return in the time between today and when you’re going to withdraw the money (time horizon).

 

There are several different funds you can invest your KiwiSaver in. These are generally classified as either conservative, balanced and growth or variations of these. You do need to have all of your sum in one classification. You can choose to split a percentage of “units” across a number of different funds (i.e. from a low-risk to a more aggressive fund). For example, you might put half of your savings in balanced and the half in growth. And it’s not a set-and-forget scenario—you can move these percentages around to suit your goals and life circumstances.

 

The investment statements must be provided to you prior to you signing up to KiwiSaver. You can of course do some of your own research. This could be looking at the Sorted website to compare some funds (see who has the best returns, lowest fees, and who invests in socially responsible sectors and so on).

 

The government’s KiwiSaver website provides forms and tools to get things set up, to keep track of your contributions or to help get your money out.

 

There are a number of different levels of advice that you can receive, from “information only” to “class advice” where the representative will outline what is suitable for people in your group or “class”. For example, “we recommend people aged 30 to 45 choose ABC fund” through to personalised advice where the investment structure is tailored to your personal situation.

 

The advice piece is crucial.

 

So many Kiwis are not close to their next time horizon where funds will be withdrawn, and they are sitting in a default fund—where their KiwiSaver is just ticking away and the potential for a larger KiwiSaver balance is not being realised.

 

When’s your next KiwiSaver time horizon? Is it time to have a chat about getting the most from your KiwiSaver?

 

Simon O’Neill is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Am I Ready to Buy for the First Time? Or Again?

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There is one constant in the ever-changing world of banking: the confusion as to what people can and can’t afford. Lance explores the murky waters of why some banks say yes and some say no.

 

Yeah? Nah.

 

I often find myself sitting with people who believed they were in no position to purchase but could and, conversely, people who believed they could but, at that time, could not. Beyond this, they may have been sabotaging their plans by putting together a strategy that was actually taking them even further away from their house-buying goal.

 

To help clear up some of the confusion, there are really only three things a bank is interested in:

1. Deposit (or equity)

2. Income

3. Debt

 

A scenario I have come across often is when people have strong income, some debt, but a low deposit. They believe their biggest hurdle is the debt, so set about reducing this. The truth is, while they have some debt, their earnings are at a level that the debt is easily managed, even with a mortgage. They need to increase their deposit, but unfortunately all their extra cash is being channelled inefficiently towards debt repayment and, so, unnecessarily delaying their timeframe for purchase.

 

To all those colour-coded Excel spread sheet lovers …

 

There can be times when people have been up all hours looking at properties or going to open homes for months when, unfortunately, they had no ability to purchase at their target price point. This can be frustrating as numbers can be based on correct “true-to-life” calculations. However, banks have their own rules of basic math.

 

When a bank calculates what we can afford to borrow, they use a far higher interest rate (to mitigate fluctuations), and they have a minimum average spend for cost of living for each scenario presented e.g. two adults, one child vs. one adult, no children etc. Furthermore, because each bank perceives risks in different ways, they each calculate a household’s scenario differently. They’ll give greater or less importance to things like the number of vehicles you own and whether child support is organised formally through the IRD, as well as a few other quirks.

 

“If I could turn back time.” — Cher

Time is our gift to you. Tell us your scenario, what you are hoping to do, and when you are hoping to do it. Let us sit down and come up with a clear strategy based on what you are truly able to do.

 

If it is not today, let us help you journey towards that “yes” sooner rather than later. Let’s unpack your plans beyond this next purchase and consider the ramifications of each step. Let’s reduce the uncertainty.

 

Lance Shearman is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

5 Daily Steps to Wellbeing

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As financial advisers, we help guide people through our fair share of stressful situations. So, as a team, we’ve made a commitment to prioritise wellbeing. And here are five simple steps to help boost your wellbeing today.

 

I have worked for Velocity for a few years now and have slowly learnt the importance of looking after my wellbeing, both at work and at home. Life is rather hectic (juggling three kids, a full time job, and Brendon) so I’ve put in place some strategies to ensure I look after myself and stay sane in the workplace.

 

The Mental Health Foundation recommends we incorporate five elements into our daily lives to improve our overall wellbeing. So I’ve taken these on board and try to follow these every day.

 

So, here are my five daily steps to wellbeing!

 

5. Be Active

I get up at 5am and go to the gym each morning. Starting the day with exercise   leaves me feeling good for the rest of the day and I tend to eat better throughout the day too!

 

Then it’s yoga in the evenings to unwind and de-stress. I aim to do at least 10,000 steps a day on my Fitbit, too, which often means taking breaks to walk around the block throughout the day. You may find both myself and Stevie walking around the office, looking at our watches, to get our steps up!

 

4. Give           

Each week I aim to do two good deeds, whether it’s donating to the local food bank or dedicating my time to someone who needs help. I make sure it’s something I want to do and have time for, so that I don’t end up feeling resentful. Doing something for others makes me feel good.

 

3. Learn        

I’m always trying to learn something new, both at work and at home. I try to set myself a fitness challenge as well as a learning challenge each month. I’m currently trying to master the “side crow” pose in yoga. Not easy! According to mentalhealth.org.nz, adult learning (which includes goal-setting) is proven to be strongly associated with higher levels of wellbeing.

 

2. Connect    

I try and catch up with friends as often as I can—even if it’s just for a quick walk or a cup of coffee. In the past, I’ve been too busy to fit it all in, so I am making a habit of fostering relationships and ensuring I allocate them the time they need.

 

1. Take Notice

Each day I think of one thing I am grateful for.

 

For further information head to mentalhealth.org.nz

How much do Mortgage Advisers get Paid?

Let’s peel back the curtain to see what’s really going on inside your favourite mortgage brokerage: How do we get paid? How much do we get paid? Why do we recommend one bank over another?

 

We have hit the headlines this week. Banks, insurance companies and advisers (i.e. us) are in the spotlight in Australia and NZ. One of the issues raised was how and how much we get paid. It is fair to say there are some interesting conversations going on in our world at the moment.

 

At Velocity we pride ourselves in doing the best possible job for you and giving you advice that is best for you. Apparently that isn't that common in financial services.

 

We currently get paid a commission from the banks and insurance companies with whom we place your business.

 

When we first meet you, we disclose how much all our providers pay us, even though there is no obligation for us to do so. Yes, each provider pays us slightly differently, so all we can do is explain that. It is also up to us to give you solid reasons why we recommend each product and company we use. 

 

We've just done a quick tally up and below you’ll see the percentages of business we have placed at all the home loan lenders we use (based on numbers of new settlements).

 

As you can see, it is "horses for courses". We don't have favourites. All the banks have their place and all our clients are different.

 

We try hard to operate with maximum transparency. Always feel free to ask us to justify our recommendations, as we want you to have confidence that we are doing a good job and working in your interest.

 

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ANZ: 34%

BNZ: 16%

ASB: 15%

Sovereign Home Loans: 12%

Westpac: 11%

TSB: 2%

The Cooperative Bank: 1%

Non-Bank Lenders (Avanti, Liberty, BlueStone, Resimac): 9%

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.

Fixed vs Floating: New Year, New Interest Rates?

Starting off 2019, interest rates are staying low but the Reserve Bank may have a trick up its sleeve that could have a downstream influence on the great fix versus float debate. Brendon explains.

 

There has been some post-Christmas sharpening of home loan interest rates. 

You will see a 3.99 per cent for one-year and two-year loans currently being advertised. This normally applies for "main bank", owner-occupied clients (in other words, not for low deposits or investor-only clients).

 

From an economic perspective, there doesn't seem to be any upward pressure on these rates for 2019. Interestingly enough, the only pressure that may come to bear is a potential Reserve Bank/government regulation requiring banks to hold more capital.

 

The Reserve Bank has suggested that the percentage of "money [that] banks have in hand per amount of loans outstanding" may need to increase to better protect the banking system from any economic shocks (known as capital adequacy ratios). If this is implemented, it will effectively increase banks’ running costs. Unless the shareholders are willing to take lower returns (??!!), then the customer will pay—at banks, this means increases in interest rates.

 

So, should you fix or float?

 

Securing an interest rate under four per cent isn't bad!

 

Up until now, most of our clients have been fixing for one year because that was the lowest rate and because the expectation was rates would stay low for another year, giving time to re-fix in a year for a still low rate. 

 

The only spanner in the works to this approach is the possibility of the above regulatory change, which still remains to be seen. The potential for changes introduces some uncertainty to the mix and some of our clients may choose to minimise that risk by fixing for two years, at what is now a great two-year rate.

 

Be aware that all clients won't get that exact rate, as it is case-by-case, bank-by-bank. If you have good equity, you should be getting close. Note also that everyone is different, so how long you fix your loan for may be different than the next person.

 

Also note that it is often wise to keep some flexibility. Channelling any cash surplus to your home loan in a smart way can surprise many with the difference it can make.

 

We can work that all out for you.

 

Brendon Ojala is a Registered Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.