5 Mistakes People Make When Buying Insurance

Insurance is not a simple product. With so many options out there, how do you know you are making the right choice? We have listed below the five most common mistakes people make when purchasing insurance.

 

1. Only Considering Price

Whilst price can be an important factor when purchasing insurance, it is certainly not the only thing you should be considering.  Other factors you should be taking note of are:

  • The financial stability of the insurer and likelihood of a claim being paid
  • What the company’s policy is on ‘grey’ areas and their dispute handling process?
  • Quality of policy wording and the limits of the cover
  • What type of built in benefits are included?
  • Who owns the policy?
  • Are you entitled to future benefit increases without having to go through medical underwriting again?
  • For income protection, is your potential benefit agreed in advance or do you need to be financially assessed when you go on claim?
  • Full and partial benefit payment options and also offsets e.g. ACC

As always, there will be a balance between the quality of cover and price. But to make sure you are not committing to an inferior product, it is best to have an adviser look at what products are available and then match them to your needs. Which leads to mistake number 2…

 

2. Buying Insurance Online Without Advice

The process of buying insurance online does carry appeal as you do not need to take much time out of your schedule to set up cover and you can complete a quick and simple application online.  However, it is important to be aware that some providers are offering a quick online process which does not involve a proper assessment at the time of application, rather, they undertake an assessment at the time of claim.

 

By comparison, an adviser will most typically take you through the process of assessment at the time you first apply for cover, meaning that you have increased certainty around claim time rather than having your claim denied because of non-disclosure, exclusions or unfair clauses in inferior products – this is important when you are really counting on an insurance pay-out.

 

3. Not Considering How Much Cover You Or Your Family Really Need

We often find that people underestimate how much cover they really need and it is not until they have sat down and gone through an advice process that they get a real picture of their needs. Some of the questions we ask them to think about include:

  • Do you want your mortgage to be repaid if you pass away unexpectedly?
  • Will you need money to cover funeral costs?
  • Will your spouse need money to allow them time away from work to look after the children and grieve if you passed away?
  • If you got sick and couldn’t work, how long would your savings last? Could you keep up your mortgage repayments?
  • If you suffered health problems would you be happy to go on the public wait list for treatment?

The right insurance plan would have enough cover for all of the above, so it is up to you and your adviser to work out a balance between what cover you would like to have in place and what you can realistically afford.

 

4. Not Considering Level Premium Options

As you get older, the risk to insurers of you making a claim gets higher – hence why insurance costs more as you age. We have found that as premiums rise with age, there is an increased chance of cancellation of cover. This can be a catch-22 because as you get older the chance of you making a claim on the cover you have had in place for all that time is higher.

 

Did you know you can buy life insurance with level premiums? Having a level premium means the premium is averaged over the lifetime of the policy, which helps with long term affordability. Ask your adviser about the benefits and advantages of a level premium option.

 

5. Not Reviewing Your Cover Regularly

Typically the level of cover you need over your lifetime will not remain the same. We recommend to our clients to review their cover on an annual basis and every time they go through a significant life event e.g. taking on a mortgage or having a baby.

 

By regularly reviewing your insurance cover you can assess if your cover amount would still meet your needs if you had to claim, potentially save yourself money and it gives you the opportunity to ask your adviser if there are any new products available that you could benefit from (however, a good adviser should be making you aware of these before you have to ask!)

 

If you have any questions or comments about any of the points we have raised in this article, please feel free to contact us.

Reaching Your Financial Goals

Every person has certain goals that he/she wants to meet. Some people want to buy a home, while others want to purchase a car. Some pragmatic people want to save up sufficient money so they can live comfortably after retirement. Now, while financial goals may vary from person to person, there is the risk that you may be unable to achieve your goals. A common mistake people make is setting goals that are too ambitious or lofty with regards to their earnings and capacity to save money. In some cases, the circumstances don’t allow them to go through with their plans.

This doesn’t mean that you shouldn’t set financial goals or take each day as it comes. The idea here is to help you reach your financial goals through effective steps that you can follow easily. So, without further ado, here are a few tips for reaching your financial goals:

 

Plan Wisely

Failure to plan is planning to fail when it comes to your financial goals. You cannot just say that I want to save a million dollars by the age of 50. You have to think of a feasible plan that you can follow to reach that number. There are several factors that you have to consider when coming up with a plan. First and foremost is the amount of money you want to save. The second and equally important factor is the amount of time you have for saving that amount of money. This will enable you to calculate how much money you need to save every month or every year to reach your goal.

Any plan that answers these basic questions will prove effective in the long run. With a viable plan in place, you will be able to track your progress and not have to worry about making changes or cutting corners to save more money. Of course, you need to keep your plan a little flexible, because things can change unexpectedly. That being said, you should try to cover all the bases when coming up with a plan so that you don’t face any major hurdles towards achieving your financial goals.

 

Be Realistic

You may have considered the amount and time factors, but there is another equally important factor that your plan should include: realism. Your plan has to be realistic in order to be achievable. If you plan to save 25% of your salary every month, it is not a realistic plan. In fact, most people making $45,000 a year can save up to 3% of their annual salary. Plus, you have to consider any debts that you have to manage while saving to reach your financial goals. If your plan isn’t realistic, you will eventually end up abandoning it.

 

Since that is something you cannot afford, it is better to be realistic. An effective way of doing this is setting short-term goals, such as paying off your credit card in a year. This way, you will get an idea of how much money you can spare in a month and when you have handled your debts, you can start saving more.

 

Set Small Goals

As mentioned above, it is a good idea to start by setting small goals. Your overall financial goals stay in place but you can break them down into smaller chunks. For instance, if you plan to save money to put down a deposit on your home and you need $50,000 in 4 years, you should instead focus on saving $12,500 this year. Break it down further and you will come down to around $250 a week. When you achieve the smaller goals, you get the confidence and the motivation to continue pursuing your long-term goal. Otherwise, there is a risk that you might give up.

 

Automate the Process

You should automate the process based on your plan. For instance, if you have to transfer $250 a week to your savings account, ask your bank to do it directly, rather than you having to go to the bank. Not only will this reduce the hassle involved in the process, but keep you accountable. The money will be gone by the date you have decided on, and you will have to make do with the remaining amount in your checking account.

 

Don’t Use Your Savings

This is perhaps the most difficult part of the process. You might be tempted, on occasion, to use the money you have saved for any upcoming expense. For instance, you may have to pay your son’s tuition fee. However, if you tap into your savings, you are compromising your plan. Therefore, it is important that you find a way to keep your money out of reach. For example, you can set up an account where you can only withdraw the money after a certain period, let’s say 5 years. Otherwise, you might be reaching for your ATM card and making withdrawals every time you need some money.

 

 

 

These are some tips you can follow to reach your financial goals. The key is to be consistent, disciplined, and focused. Once you make the commitment, you don’t have the option to renege. So, be mindful of this before you go ahead with this plan.

Sam Kodi | Financial AdvisorAll you really need to do is make a plan and seek advice from an experienced financial professional and you are good to go. You can make the most of your earnings and support your lifestyle while at the same time building for the future.

If you would like a free, no obligation review of your current Wealth & Investment plan then please contact me on 021 283 5065, or book an appointment on my website http://samkodi.co.nz/contact/.

How to Ensure Financial Stability as a Health Professional

The common perception is that a career in the health industry is lucrative and there is greater job security as compared to other fields.

However, what most people don’t realize is that financial stability may be elusive even if you find a job as a health professional.

Keep in mind that this means that even if you have a well-paying job, you might still have some way to being financially secure and stable in the long run. So, why does this happen? Let’s look at the factors that affect the financial stability of health professionals:

Extravagant Spending

Doctors and other medical professionals have to really struggle and suffer during their training period. Naturally, you might feel that once you start earning, you can accumulate assets that will help you live it up.

However, some assets may lose their value over time and with each passing year, your depreciation expense will continue to increase. Of course, you might feel you deserve the extravagance but it isn’t good for financial stability.

Unnecessary Credit & Debit

You probably graduated with a huge student loan debt, so you are accustomed to making monthly payments from time to time. Once you become a professional, you will find that credit is readily available to you and all you have to do is apply.

There is a chance that you fall into the trap and start accumulating more debt over time. As a result, a large part of your income will go towards paying off existing debts, rather than helping you secure your future.

 

Keeping Up Appearances

Being a doctor means you have to dress and look the part. Unfortunately, that means spending a lot of money on items that necessarily don’t offer any real value and only make a dent in your wallet. Buying a house or a new car could mean accruing more debt, and the cycle continues.

Risky Investments

As a qualified medical professional, you might feel you have the brains to assess investment opportunities, and you do, but this also means that some professionals end up making risky investments that don’t pay off.

The good news is though it’s not all is doom and gloom. Here are some tips you can follow to ensure you can secure your financial future.

1. Set Goals

Failure to plan is planning to fail when it comes to finances. Therefore, it is important that you set clear goals for yourself when it comes to your income. Map out a plan which will enable you to save sufficient amounts of money in the future so you can live comfortably and be financially secure.

2. Protect Your Assets

The worst thing you can do, especially when you are just starting out as a professional, is exposing your money to risk. Whatever assets and income you have, make sure you don’t take any undue risks where you might end up losing everything. Therefore, be shrewd with your plans and stick to what you have, rather than aiming high and losing it all.

3. Efficient Debt Management

As mentioned, there is a good chance that you already have a student loan to deal with. Over time, you will use credit as it becomes available. The key is to spend what you can cover. Here, consult a professional regarding debt management. If you can structure your debts in a way that they don’t take up a huge chunk of your disposable income, debt won’t affect you adversely. Focus on paying off your debts faster and look for opportunities to do so.

4. Invest Wisely

It is a good idea to consult an investment professional and start building your investment portfolio. There are plenty of investment opportunities that offer a decent return with relatively little risk. The key is to rely on the experience and expertise of professionals who have been in the field for some time rather than counting on your judgment.

Assess your options and exercise caution before you take the plunge. Keep in mind that it takes only one bad investment for you to lose everything.

These are some tips that will help you ensure financial stability as a health professional. The best part is that following these steps is easier than you might think.

Sam Kodi | Financial AdvisorAll you really need to do is make a plan and seek advice from an experienced financial professional and you are good to go. You can make the most of your earnings and support your lifestyle while at the same time building for the future.

If you would like a free, no obligation review of your current Wealth & Investment plan then please contact me on 021 283 5065, or book an appointment on my website http://samkodi.co.nz/contact/.

Health Insurance

Things to Keep in Mind When Buying Health Insurance

There is no doubt that good health and health insurance should be a priority for everyone. We all know how expensive medical care and treatments can prove to be when you fall sick. This can be incredibly taxing as not only are you not feeling well in the first place, but the added expense will cause a lot of stress.

Thankfully, the government does cover some of the costs of healthcare for the people of New Zealand, but that coverage is limited, especially if you have a major illness. So, what can you do to ensure you don’t have to pay out of pocket for any treatments you undergo?

This is where health insurance comes in. As you know, with a health insurance policy, you can have the provider cover the costs of your medical treatments and care, without you having to bear any extra expense.

You simply have to pay the premium on time and you are good to go. The costs covered under health insurance include, but are not limited to, private surgery, hospital care, and ongoing expenses. Moreover, the best insurance providers offer extended coverage for spouses and children. You can even receive coverage for additional treatments, like dental work, with proper health insurance.

Not All Health Insurance Policies Are EqualHowever, not all health insurance policies are made equal. Though almost every provider claims they offer the widest and best coverage, if you go over the terms and conditions, there are major differences. Plus, it is next to impossible for you to understand the different terms that apply in case of medical emergencies.

All in all, you need to pay significant attention when selecting a health insurance policy. The best option in this regard is consulting an insurance expert.

The expert will provide you the guidance you require and suggest options as per your needs.

This will not only enable you to reduce the hassle associated with the process of selecting health insurance but also ensure that you receive coverage when you need it the most. However, even when working with a professional, you have to keep a few things in mind to make sure you make the right decision.

After all, the insurance expert will advise and guide you based on the information you provide. To make things a tad easier for you, here is a look at the things you need to keep in mind when buying health insurance:

Be Honest at All Times

First and foremost, you need to maintain open and honest communication with the insurance expert. Answer all the questions they ask truthfully, especially when it comes to any medical problems you already have.

Often, policies are rejected based on misinformation on part of the client. Moreover, there is a good chance your claims might be turned down if the insurance provider discovers you hid a medical condition at the time of applying for the policy. Therefore, it is crucial that you are honest with the insurance expert you are working with.

Medical IssuesOften, people abstain from being honest because revealing medical issues at the time of application means paying a higher premium. So, don’t hide information in a bid to save money, because then you run the risk of your policy being voided later on.

Keep in mind that you will not receive the money you have paid to that point back. And this also holds true after you have applied. For instance, there is a chance you are diagnosed with a condition after you have applied for the policy.

In that case, you are responsible for informing the provider about the change in status.

Some people, in a bid to save a few dollars, deliberately hide their medical problems. This could get you in trouble and it is likely you won’t be able to find a decent health insurance policy later on. So, the bottom line is that you need to be truthful and open about your health status, as eventually, the company will find out if you misled them.

Provide Your Accurate Medical History

In addition to being honest, you have to provide an accurate medical history to your insurer. It is part of the procedure of applying for health insurance and something you should not ignore, at any cost.

At the end of the day, all you really need to do is call your doctor and get a copy of your medical history. Don’t be apprehensive as the insurance company is legally bound to keep your medical history private!

Pay Your Premiums on Time

Before you go ahead and sign the dotted line, make sure you can afford to pay the premium every month, on time. Even a single missed payment can result in your policy lapsing. Therefore, it is important that you keep this in mind before you actually apply.

Sam Kodi | Financial AdvisorThese are some things you should consider when buying health insurance. By working with an insurance expert, you can ensure you cover all bases and get the best possible coverage.

If you would like a free, no obligation review of your current Health Insurance plan then please contact me on 021 283 5065, or book an appointment on my website http://samkodi.co.nz/contact/.

KiwiSaver

All You Need to Know About KiwiSaver

Planning your financial future is important. However, it can be tedious to go over your options as not all of them are exciting.

This is where KiwiSaver comes into the picture.

Though KiwiSaver might not be the most highly touted or glamorous option for ensuring financial security, it can prove an effective tool. To make things easier for you, here is an overview of KiwiSaver along with all that you need to know about it.

What is KiwiSaver?

In simplest terms, KiwiSaver is a retirement fund you can sign up for. Sanctioned by the government, KiwiSaver offers a savings scheme you can contribute a percentage of your income to.

KiwiSaver is voluntary scheme, and you have to opt in to make contributions to it. The way KiwiSaver is designed helps you save money from your current income for your retirement.

This is achieved through:

KiwiSaver Can Help First Home Buyers• Receiving contributions from your employer that will help increase the amount of money you save over time.

• Contributing a nominated percentage of your pay to the scheme.

• A tax credit granted by the government on an annual basis to all members.

• Assistance with making a deposit on your first home, provided you are eligible for the scheme.

Despite being initiated by the government, KiwiSaver is managed by private companies. These include a range of financial companies and institutions that bring their experience and expertise to bear to help you secure your financial future.

How it Works

Under KiwiSaver, you can choose from a range of options. They offer different plans, each with its own level of risk and return. You will be charged a certain fee for using KiwiSaver, which will be deducted from your account.

Moreover, you have the freedom to choose the provider you want to invest your money with.

In case you are unable to make a decision, for whatever reason, your money will be invested in the scheme your employer prefers or in any default scheme. However, you do have the option to change providers, as and when you see fit.

What KiwiSaver is Not

It is equally important that you understand what KiwiSaver is not as what it is. The issue is that there are certain myths and misconceptions about KiwiSaver, and it’s crucial that these myths are dispelled.

• KiwiSaver is not a general savings account. The purpose behind the scheme is to help you save for your retirement. This does mean that there are certain conditions under which you can withdraw your money, for instance buying a house or facing a medical emergency.

• The government approves of KiwiSaver but does not guarantee it. The risk is yours to bear. This is because all the decisions regarding which provider to choose and how much money to invest lies with you. The scheme can fail, which is a risk with virtually every financial scheme, and the government will not provide any assistance. This is why it is recommended that you seek professional guidance for choosing a provider.

Why Opt for KiwiSaver

KiwiSaver - Your Nest Egg

It is a matter of time before you reach the age of retirement and will earn no further income. At that time, you have to rely on the money you have saved over the years to maintain your lifestyle and lead a comfortable life.

That being said, you might wonder why you should opt for KiwiSaver when there are other options available. For one, it is the only scheme backed by the government, with other retirement schemes no longer accepting new members.

And that is not the only reason why KiwiSaver is a viable option. Here are some other reasons why you should opt for KiwiSaver:

1. Convenience

You don’t have to put in any extra effort or resources to sign up for KiwiSavers. Once your account is set up, your employer will be responsible for handling your contributions. The money will be deducted from your pay every month. The employer will transfer the funds to the IRD, who will then forward the sum to the scheme you selected.

2. Flexibility

As mentioned above, you have complete freedom to select the options you want to avail under KiwiSaver. This makes it one of the most flexible retirement schemes available to you. You can decide on the percentage of your gross pay that you want to contribute every month, for instance 4%. Moreover, the scheme also allows you ‘contribution holidays’, ranging from 3 months to 5 years, provided you have made regular contributions for at least a year.

3. Rewarding

The amount of money you contribute from your gross pay towards your KiwiSaver account is not the only sum you will be saving. Your employer is also liable to pay 3% of your gross pay into your account. There are certain exceptions to this, but this does make KiwiSaver highly rewarding for you. The cumulative sum you contribute every month will be greater than your individual contribution

4. Tax Credits

As mentioned, the government offers a tax credit to every member. The maximum limit for the credit is $521.43, provided you contributed at least twice that amount, excluding contributions from your employer. This means extra savings, which add up over time!

Sam Kodi | Financial AdvisorOverall, KiwiSaver is a viable option that you can avail to save money for your retirement and secure your financial future.

If you would like a free, no obligation review of your current KiwiSaver investment plan then please contact me on 021 283 5065, or book an appointment on my website http://samkodi.co.nz/contact/.

Five Reasons to Use a Financial Advisor for Your Life Insurance

We all want to plan for our family’s financial security and future. Part of this process involves ensuring that our beloved family does not have to go through struggle and hardships in the event of a spouse’s death, a parent’s death, or our death.

“This is why getting life insurance is a crucial part of everyone’s life.”

It can provide protection and security in plenty of ways, such as helping to pay for education for dependent children, your house mortgage, or fund your retirement. However, understanding life insurance and purchasing from the right agency can be confusing, and too many people think that life insurance on its own will provide enough protection- whereas in reality there are many situations where this will not be enough.

It is incredibly important to ensure you have sufficient and correct cover before you actually need it- you don’t want your coverage to fall short in the unexpected event of your death, leaving your loved ones with financial difficulties at what is already an emotionally difficult time.

Therefore, there are many factors to consider when choosing life insurance, and a trusted and experienced financial advisor can help you navigate these, as opposed to buying straight from an insurance company.

Here are just five of the many reasons why you should use a financial advisor.

1) A financial advisor can advise you on the amount of coverage.

When purchasing life insurance, it is important to assess your options thoroughly, and this includes the level of coverage you will receive. A common mistake most New Zealanders make is buying too little life insurance. As a result, their family doesn’t receive adequate coverage.

In the unexpected event of your death, your family should have sufficient funds to be able support themselves and any outgoings you have left, such as your mortgage and any debt you may have. This is not a one size fits all amount, therefore it’s really important to discuss your needs with an experienced financial adviser who fully understands you, your family, and your financial situation.

When deciding how much insurance is right for you and your family, you have to consider a number of factors. If you own a business, you may also have to consider how your passing will financially affect the company.

Other factors include:

• Your Debt: Your outstanding debt is a crucial factor in deciding how much insurance you need. Will your family be able to manage your debt without you?

family-fun-at-beach• Your Dependents: How many kids do you have? Who depends on you for financial support? Is your spouse working?

• The Age of Your Children: If your children are independent and can support themselves, you won’t need as much coverage as you would if you are supporting them, particularly if you have a young family.

• Funeral Costs and Time to Emotionally Deal: Funerals can be expensive, with the average funeral in New Zealand costing $8000-$10,000. If you aren’t sufficiently covered for this, this can add further distress to your family at what is already a taxing time. You also need to ensure your family has time to adjust with their loss, both financially and emotionally, so discuss with a financial advisor how long this period may be and what level of cover you need to support this

2) A financial advisor can advise you on the type of insurance you need.

Unfortunately, most New Zealanders think just life insurance is enough, when in reality, what would happen if an accident occurred, and whilst you were lucky enough to survive it, you ended up permanently disabled and unable to work?

How would this affect your family, your outgoings and your cash flow? And then there are added costs, such as rehabilitation facilities, alterations to your home and vehicle, and any future healthcare.

Therefore, it is also a good idea to supplement your life insurance with additional insurance- such as income protection, permanent disability insurance, and trauma insurance, so a trustworthy financial advisor will be able to assess your situation and discuss with you the level of protection you need.

You also need to make sure your premiums are manageable and affordable for your personal situation, so while in an ideal world you would be protected for all events, you may need to discuss which would be your must haves and which would be nice to have.

3) A financial advisor will ensure your insurance is tailored to you.

Buying your life insurance direct from a company may seem easy and straightforward- you can even do it from your couch online in the ad break of your favourite show these days. However, how do you know that the insurance you are purchasing is really covering your requirements?

Life InsuranceUnfortunately, too many people buy an off the shelf product, only for it to fail them when they need it most. Therefore, discussing your personal, financial and family situation with an adviser will ensure they really understand you and your needs, and means they will be able to provide the level of cover that YOU need, not someone else.

It’s more than likely that an adviser will know more about what you need from life insurance than you do, after dealing with so many companies and cases.

4) A financial advisor will save you time and hassle.

Gathering quotes from several different insurance companies can be incredibly time consuming, and when you go to compare them, they may actually appear identical.

The whole process can be tedious, therefore using the services of a financial advisor will take the hassle out of the process for you. A broker can arrange all the insurance and risk protection you need, and probably only need one meeting to identify your needs, so they can develop a comprehensive insurance proposal for you.

5) A financial advisor can provide guidance in the event of a claim.

In the event of your death, your family and loved ones will be dealing with enough emotional stress, whilst grieving, making funeral arrangements, dealing with your personal effects, etc. etc., therefore the last thing they probably feel like doing is dealing with an insurance company, even though financially they may really need the support.

A financial advisor can step in at this time and take the reins of the situation, and help with the paperwork needed to lodge a claim as quickly as possible. The insurance company will need a range of documentation, such as a death certificate, proof of the life insured’s age, the policy document, probate or letters of administration.

In the event your claim gets denied for some reason, your financial advisor can work with you and the insurance company to attempt to remedy this- the average person simply doesn’t have the experience to navigate the complicated contracts, difficult wording and sometimes mysterious practices of insurance companies, and therefore a good adviser will fight for you, spending hours on the phone or in person to make sure everything goes smoothly.

Sam Kodi | Financial AdvisorIf you want a free, no obligation review of your current insurance to ensure you are adequately protected in the event of your death, or if you don’t have life insurance at present and you want to talk to someone about the best option for you.

Please contact me on 021 283 5065, or book an appointment on my website http://samkodi.co.nz/contact/.

Better Together: New Alliances & Team Members for Sam Kodi

The strength of any business is the quality of its people.  Outstanding service and care doesn’t just happen.  It takes a dedicated team committed working together to deliver the best.

At Sam Kodi, excellence, high ethical standards and exemplary client service is central to everything we do. My personal pursuit of these goals has recently led to my inclusion at the “Top of the Table” of MDRT, the Premier Association of Financial Professionals, something I feel particularly proud of.

My standards are high, so when it comes to the people I work with, they also need to be outstanding to ensure you receive the first class advice and financial solutions you deserve.

I’m pleased to announce two significant new alliances and two new staff members at Sam Kodi.

Introducing…

 “Solutions” 

Sam Kodi is now an associate of “Solutions”, New Zealand’s largest independently owned risk brokerage and risk management specialists. They work with a wide range of insurance partners in New Zealand.

Through Sam Kodi and Solutions, you now have access to the best asset protection products and services from any provider available in the market.

“New Zealand Mortgage Advisers”

Sam Kodi is now an NZMA adviser. It is important that our clients have access to a wide range of mortgage options – not just the big banks.  The NZMA offers full access to lenders, so we will always be able to put your interests first when negotiating the best mortgage deals to suit your needs.

Our Team

Our team is growing quickly! Nimalka Perera and Kylie Andrews have recently joined Sam Kodi, bringing with them a wealth of experience and knowledge.

nimalka

Nimalka Perera is an associate financial adviser with a long history of working in banking and finance at HSBC and most recently 9 years at the ANZ where his roles included client services manager and international trade specialist. He looks forward to assisting his clients work towards a healthy financial future.

 

 

kylie-andrews

Kylie Andrews is our relationship manager.  A mortgage advisory specialist, she works closely with our clients ensuring everything that needs to be done to keep you progressing towards your financial goals occurs.

 

If it’s been a while since you last reviewed your financial affairs and would like to meet up with any one of the team, please contact us.

What has the OCR got to do with me?

In August, the Reserve Bank announced that the Official Cash Rate (OCR) would be lowered from 2.25% to 2%. Markets are also predicting a further cut in November.  While the cut in August was expected, there were mixed reactions to the news – whether it was good or bad news depends on perspective!

What is the OCR?

Basically, the Official Cash Rate is the interest that the Reserve Bank charges on commercial lending overnight – the money banks and big lenders use. So the OCR sets the tone for interest rates charged by banks and lenders to their customers. This means that a falling OCR is usually followed by a falling home loan interest rate, and vice versa.

While most people’s biggest investment is property, there are still many who choose cash investments, and the effect on the OCR fall is markedly different for both types of investment.

So what does this mean for you?

If you’re a home owner, home loan interest rates look set to stay relatively low. With the low OCR, banks and other big lenders are paying less on their own borrowing from the Reserve Bank, so they can pass their savings onto their customers. Your interest rate should stay within a few % of the OCR so if your home loan is floating, you might want to consider fixing a portion of your loan to lock in the good rates.

If you’ve got cash investments, the news is not so good for you. The low OCR means interest rates are low – all interest rates. Your cash investment won’t be earning much of a return as banks aren’t paying out a whole lot of interest at the moment. While term investments in recent years have had some good traction, interest rates with most major banks and lenders are currently sitting between 2-3% on medium to long term investments.

Retailers can rejoice however – consumers tend to spend more when the OCR is lower as there is little to no incentive to invest savings into such low paying term deposits. When interest rates are soaring those who have money set aside will be much more inclined to get their money growing faster by investing it. There’s currently not a lot of motivation to save – other than saving is very good idea – so consumers are more likely to spend (often not wisely, however).

It also means our banks won’t see a huge amount of overseas investments. Overseas investors look to buy $NZ and invest it here when the OCR and interest rates are higher – they get a quicker and better return on their money. So when the rates are low, it’s a pretty unappealing market to all cash investors. This means the $NZ should (in theory) drop in value too – keep this in mind if you are looking at travelling in the near future.

Basically, it’s a good time to be a borrower. Borrowing is much cheaper when the OCR is low as banks are paying lower interest so you can expect to have a number of low interest borrowing options made available to you.

Getting a home loan for the first time may be a little easier too. Home loans are much more affordable when interest rates are low, and money invested in property is going to earn value substantially quicker than any term deposit so now is a good time to grow your wealth through property investment. Just don’t assume that interest rates will always be this low.

It’s a bit of a mixed bag but the clear winners of the low rates are those with money invested in property. It’s not often that the market encourages borrowing and spending at the expense of saving. But these conditions are likely to lead people into some very dangerous territory in the long term.  Before you get carried away on increasing your debt levels for that overseas holiday or home renovations, seek financial advice first.  When it comes to creating a healthy financial future, it’s a long term game.