Will a Home Loan Kill My Financial Freedom?

Financial freedom

In a time where the cost of living is increasing significantly faster than our pay rises can keep up with, many ‘average’ New Zealanders are faced with fears that a home loan will cripple their finances. They worry that their ability to enjoy the lifestyle our beautiful country has on offer will be all but gone, replaced with 2-minute noodles, instant coffee, and no financial freedom to make other really important decisions – like starting a family or taking an annual holiday.

While a “bad” home loan can definitely have the potential to wreak havoc on your coin purse, it’s not all doom and gloom if you find the right package to suit your life.

It’s all about balance. The right property, at the right price, in the right place, at the right time, with the right debt level, and the right type of loan….OK, so it does get complicated pretty quickly.

Here’s five ways you can help make sure you don’t end up that local debt creek without a financial paddle:

The right home loan has so much potential to improve your daily cash flow

With rent prices hitting all-time highs due to such high demand on a very crowded rental market, you could actually be paying less on a home loan than on rent. While this potential varies hugely from region to region, it’s worth taking the time to look into. Having a home loan free up some cash? Now there’s the real Kiwi dream!

Save the shuffle for the dance floor

With money, the juggling act is very real. When trying to qualify for a home loan, shuffling the numbers so that they stay the same but appear to be much more ‘wealthy’ may seem like a great idea at the time, and may get you the big tick of approval from your bank, but at the end of the day you know your financial situation better than anyone. You won’t be doing yourself any favours in the long run by plumping things to appear more financially viable.

Steer clear of over committing

Now is not the time to be keeping up with the Jones’. Buying what you can afford sometimes means you may not get everything you need to impress your neighbours/frenemies with. Maxing out your finances on that dream home might seem like a great idea, but it gives you no room to manoeuvre. Give your equity a chance to grow in a property that’s more sustainable for your current situation, and in time the dream home will come.

There are different ways to borrow

Just like jeans, there’s no one-size-fits-all home loan. Take care in finding a lending style that suits your lifestyle. Finding flexibility within your mortgage is still possible – you just need to ensure your money is still working for you, however it is tied up. A home loan can be structured in a number of ways, meaning the way and rate at which it can be repaid can vary too.

Get more spending savvy

Find where you can scrimp so that you can still splurge when you need/want to. Mow your own lawns (you’ll save on a gym membership too!), get a tradie mate to help with renovations, and make cuts on any luxuries you could happily forgo to still be able to afford a weekend away every now and then. You may need to tighten the belt to get a deposit saved up, but committing to the right home loan doesn’t mean the fun in life is over.

Financial freedom is perfectly possible whilst committing a chunk of your cash flow to a home loan – you shouldn’t feel overwhelmed by financial dread.   Like anything, you just need to find the structure that works best for you to ensure the purchase of your new home is the catalyst for financial security and freedom.


The Perils of Cashbacks, Free TV’s & other Home Loan Enticements

Being a mortgage provider is no longer exclusive to big banks. The number of relatively new and accredited lenders has grown to meet the bulging housing demands, and with this expanded territory comes fierce competition.

Everyone loves freebies, especially when they are used as sweeteners for big purchases. We’ve all seen the adverts, we’ve all been tempted by them, and for some of us the temptation has been too strong. We’ve purchased that new Smart TV – which in a few months will just be referred to as a TV – and received our free 8” tablet, or we’ve replaced our oven with a 12 function stainless steel upgrade and received our free matching toaster and kettle.

If a provider has to dangle carrots to entice you to borrow through them, you might want to take a step back and ask yourself why. The right mortgage package should sell itself to you for all the right reasons.

Here are a few points to consider:

Cashbacks have to come from somewhere

Lenders make their living by lending, not giving. That cashback or store credit they offer up to you is coming straight out of your back pocket, but clever marketing means you kind of miss the fact that you’ve just paid for it yourself. It’s like buying yourself a voucher for your birthday but still feeling spoilt when you spend it.

There may be conditions that may not help you in the long run

We cannot stress enough how important it is to keep your finances healthy for the term of your home loan. You need to be aware that there may be conditions like signing up for a new credit card, or having your wages paid directly into a new account that may not be beneficial for you. Always check the fine print!

You know it’s not actually free, right?

When they say free, they should actually say “let’s pretend it’s ‘free’”. There may not be a visible charge for the TV, but it’s incorporated in there somewhere. Trust us. Somewhere hidden amongst the fees and the interest, you will be covering the cost of that ‘free’ TV. If you have to buy something to get something else for free, it’s not free. Again, it’s just clever marketing.

The best incentive should be bang for buck

Look past any offers that don’t have a direct positive impact on your home loan. Over the course of your home loan you might be paying anything from $100,000+ in interest alone. Let that figure sink in for a minute. The value of a TV or a $2,000 cashback probably won’t have much of an impact – positive or negative – on your finances across the life of your mortgage.

Is it really value for money?

Would one free Pineapple Lump convince you to purchase 28,000kgs of chocolate covered goodness? That’s about the same value ratio being offered in most instances. Real value offers like competitive interest rates, lump sum repayments with no or low fees, and transparent negotiations should spark the right conversations.

By not buying into the hype of ‘free’ stuff, and by focusing on what’s really important when it comes to choosing your mortgage provider, you may find there is a much more economical way to get that new appliance or store credit.

Need help with a home loan? Brokering the best deal could be as simple as engaging an independent authorised financial adviser. We know the right questions to ask, the loopholes to look out for, and the clauses you’re best to steer clear of to provide you with safety and stability.

Talk to us today about how we can help you find the right mortgage solution.

The Best Home Loan Has the Lowest Interest Rate…and Other Mortgage Myths

Myths, old wives tales, call them what you will. There are a number of misleading ideas around mortgages that can trick you into, or out of making the best decisions for you and your finances.

The truth is, there is no mortgage package that suits everyone, there’s no solution that fits all situations, and unfortunately, no real way to avoid all that pesky interest. However, property adds value to your hard earned dollars faster than any savings account ever could, meaning property will still be the biggest and best investment you will ever make.

But how will you find what works best for you? How can you decide what best meets your property and mortgage needs? Let’s start by debunking the 5 biggest home loan myths:

1. The best home loan will have the lowest interest rate.

A low interest rate is great! I mean, you’ll be paying this loan off over the next 20-30years, a low interest rate could potentially save you thousands, right? Not always. Does the low rate mean you have to fix for longer – and therefore possibly miss out on better rates in future? Are there hidden fees? Are the low rates only for a short amount of time? A home loan is a long term commitment and while the short term needs to be considered too, keeping the years in perspective is crucial to a healthy mortgage.

2. You’re better off sticking with one of the major banks.

The overall demand on the property market has seen a boom in new financial lending institutions in the last decade. Long gone are the days when banks were the best – and only – option. These days there an increasing number of accredited and thoroughly regulated financial services that can offer a range of lending options that may work better for you. Borrowing is complex, and to find your best options you may need to shop around.

3. Having a deposit is your only hurdle.

With rent prices at an all time high in most regions, saving for a first home deposit is tough enough. You also need to keep in mind that there are a number of costs involved with buying a property that you will need to cover. Lawyer’s fees, builder’s reports, LIM reports, property valuations, and then ongoing costs like insurances, rates, property maintenance etc. This list can seem very intimidating, and although in some instances, a number of these costs may be covered by your home loan package, you will need to be prepared to cover these costs as they arrive.

4. Online mortgage calculators are a great indicator of what you can afford.

Unfortunately, this is very, very not true. In fact, online calculators as so completely unaware of your true circumstances that even a University student working part time could be lead to believe they are eligible for a significantly sized mortgage (think $420.000+). Hardly likely, is it. As handy and easily accessible as these online tools are, the only way you can get an accurate and reliable outline of your finances and your mortgage affordability is by speaking with an authorised financial adviser.

5. A home loan is a great way to consolidate debt.

While the interest rate on your mortgage may be anything up to 20% less that a vehicle loan, the timeframe on your mortgage is considerably longer than a vehicle loan meaning you could be paying more than quadruple the value of your vehicle over your loan term.

There are endless ways you can have a smart mortgage that works for you, the challenge is putting all of the pieces together so you have a strong foundation to build your borrowing on.

It’s all about staying well informed, minimising the risks, having well-balanced finances, and having a customised solution to get your money and your mortgage working for you.

Need advice? We specialise in mortgages and personal insurance so contact Sam Kodi if you’re looking for the best mortgage solution for you.

Is Your Financial Adviser Acting in Your Best Interests?

Financial advisers’ actions can make or break you financially. Good advice can set you up for a comfortable life and retirement. Bad advice can lead to financial ruin. But without waiting for the consequences, how do you know if the advice you have received falls into the “good” category?

Recently there has been increased media attention about this subject, with accusations that the Wild West is alive and well in the financial services world. There is growing concern that the advice consumers are receiving is not in their best interests, nor may it be personalised.

“Best interests” is an important term as it is a key defining feature between the different types of Financial Advisers. Thought they were all the same? Think again.

Authorised, Registered & QFE Financial Advisers

Changes to financial adviser legislation in 2008 introduced three types of financial advisers:

Authorised Financial Advisers (AFA’s)

An Authorised Financial Advisor has been through a rigorous examination process to ensure they meet minimum standards for competence, knowledge and skills, client care, and ethical behaviour. Most will have in fact exceeded this standard and hold recognised university qualifications. There is also a requirement for police checks on all AFAs.

An AFA can give advice on more complex financial products and services; such as Kiwisaver, investment, financial planning services, retirement planning services, and wealth management.

AFA’s follow a Code of Conduct and are monitored by the Financial Markets Authority. Importantly for consumers, an AFA is required to put your best interest’s first.

Registered Financial Advisers (RFA’s)

A Registered Financial Adviser currently does not have to meet any minimum qualifications. Consequently an RFA is restricted to giving advice on simpler products such as mortgages, life insurance, risk insurance, bank term deposits, consumer credit contracts, and many different insurance products.

An RFA may be registered but they have a lower level of disclosure, financial supervision and monitoring by the Financial Markets Authority (FMA). There is no requirement for police checks, no code of conduct, nor is a RFA required to put your best interests first!

Advisers working for Qualifying Financial Entities (QFE’s)

Financial advisers employed by companies that have been granted status as a Qualifying Financial Entity (QFE) by the Securities Commission do not need to be individually registered or authorised if they only provide advice on their company’s own products. The QFE must ensure that its employees and nominated representatives have the competence necessary to exercise reasonable care, diligence and skill in advising clients. A typical QFE would be a bank or insurance company.

Is Your Financial Advisor Working for Your Best Interests?

A review of the current system has found that the terminology is confusing and it is hard for people to know where to seek advice.

The key to knowing if you have a good adviser is in the questions they ask about your personal situation. They can’t possibly give you the personalised advice which is best for you if they don’t have a thorough understanding of your situation and future goals. If they spend their entire time ‘selling’ you the benefits of one particular offering, policy or insurance company over another then maybe they’re not the one for you.

You need to ask questions too. Ask:

• “Are you aligned with a particular company or do you have requirements to sell a particular provider’s products?” A Financial Adviser may not be “independent” and their answer should at least tell you if your adviser will shop around for you or if you need to do it yourself.
• “Can you name the other policies or investments you have compared this recommendation against?” (Have they really thought about what is best for you?)
• “What incentives are you going to have the opportunity to get if this sale goes through?”
• “How do you get paid?”
• “Are you getting paid more to supply one product rather than another?”

While advisers have to be paid like anyone else who works, if they squirm at a question or don’t have an easy answer then it’s probably best to walk away.

Ultimately, it’s essential to ask for references. Are there people in your community or network who the adviser can point you to for a testimonial? A good financial adviser should be someone you are prepared to go back to every 12 months or whenever your circumstances change to help keep you on track with your financial goals.

Realising Dreams: What I Have Learned

My journey to where I am now – my name branded across my brand new website samkodi.co.nz – began in very humble circumstances in Sri Lanka. Born to parents who were not part of the privileged set of society, I learned early on that achieving even the basic necessities required dedication and hard work. Putting food on the table when violence is regularly erupting in the streets is no mean feat.

The world of finance in which I came to inhabit may seem in many ways far removed from my childhood. But my early days taught me some valuable lessons when it comes to money which, when applied to planning your own healthy financial future, can reap great rewards.

Know Where Your Money Goes
It’s not how much you earn that counts – it’s what you do with it. Is it spent on items that quickly lose their value? Don’t last or are not essential? Or is it going towards something that can lead to an increase in future earning ability or wealth? The same applies to your time. Are you spending enough time on tasks that will bring you future rewards?

Self-Control is an Art Best Learned Quickly
When you start from a position of not much, any little increase can give you an over-inflated sense of being “rich”. That, in turn can lead to spending sprees and unwise spending choices (see the point above!!).

As tempting as it may be to get carried away with any new-found wealth, slow down and consider your options before doing anything. There is a reason why lotto winners are advised to put their winnings in the bank for a few months first.

Protect What You’ve Got
It’s gutting to lose everything and it can happen easier than you would believe. An accident, redundancy, illness, flood, or storm – you name it – things happen which can undo your hard work. If you can protect it, take steps to do so with adequate insurance.

Dare to Believe
This is probably the most important lesson I learned – dare to believe. No matter where you come from or what your circumstances are, if you dare to believe and take meaningful action to turn your dreams into reality, anything is possible. Life may throw up many obstacles (in my case University closures and civil war) but perseverance can get you through.

Confused about KiwiSaver

Confused about KiwiSaver? Who isn’t!

Confused about KiwiSaver

KiwiSaver has been around for quite some time now – since 1 July 2007 in fact. And before it was officially launched, there was plenty to be said about it in the media. Yet despite the passage of time, and the many articles to be read about it, confusion about KiwiSaver continues unabated. Research conducted for Kiwi Wealth, the KiwiSaver scheme of KiwiBank found:

  • Just over 80% of KiwiSaver investors did not know who was managing their KiwiSaver scheme. That’s a bit like mad Uncle Arthur hiding his money in the back of an old book and forgetting which book he put it in.
  • 77% have no idea what their KiwiSaver account will be worth on retirement. So will they have saved enough? Who knows?!
  • 31% have never reviewed the type of fund their savings are invested in to know if they are appropriate, while 27% have no idea what type of fund their money is invested in in the first place (cash, conservative, balanced, high growth etc).
  • 14% of KiwiSavers don’t even know who their KiwiSaver provider is!

A quick look at the types of complaints being laid before the Banking Ombudsman reveals even more confusion about KiwiSaver – the majority of complaints are about people’s inability to take their money out, especially on hardship grounds. One thing to get clear – KiwiSaver is NOT a general savings account.

So why all the confusion?

There is plenty of information about how to sign up to KiwiSaver. In fact, many people have found themselves signed up and are a bit bemused as to how that happened. They got a new job and BAM – they are in KiwiSaver! Their money has been automatically invested in a default scheme and their employer takes care of their ongoing contributions. Being “involved” in KiwiSaver is easy.

What is disturbing is that 75% of those surveyed for the Kiwi Wealth research said they had not or did not recall receiving information on how to use KiwiSaver to reach their retirement goals when they signed up. Now imagine if your travel agent told you “you are booked into Belmond Palacio Nazarenas for two weeks next month”. Ummm, where exactly IS Belmond… whatever? You wouldn’t be happy with a travel agent who didn’t help you reach your destination goals. The same should apply to your retirement goals.

What can you do about it?

If you are feeling overwhelmed and confused about KiwiSaver, don’t feel bad or embarrassed about it – you are truly not alone. Seek advice from an authorised financial advisor, who can explain how it all works and help you plan to get to get the most out of KiwiSaver in words that make sense to you. Free help is literally a phone call away.

Planning for the future

Planning for the future

Planning for the future

In my life I have had the privilege to travel to many different landscapes and cultures, and enjoy the rich tapestry that “community” is. On my journeys, one of the many things I find fascinating is how people and communities accept and adapt to change.

There is the “head in the sand” approach. The past is revered as a golden age and any departures will surely lead to turmoil.

Then there is the “dipping the toe in the water” approach. Everyone can see, and even accepts, that the river is changing – but no one wants to dive in without testing the waters first. More information please!

Finally, the full on “bungy jump off a cliff approach”. Fearless and carefree with no thought to possible danger. It’s probably not surprising that as a financial planner I don’t ascribe to either the head in the sand or bungy jumping approaches! But, as I often get asked, how can you plan for what lies ahead when you can’t see where the road is going?

The starting point in any financial journey is to determine your goal(s). What do you want to achieve? Of course, the “head in the sand” sort of person won’t even get that far – why think about the future? The bungy jumper has already lept into action looking for the quick fix and rapid rewards. However, all too often the bungy jumper leaps so quickly they forget to attach the cord and …. you get the picture! But the “water tester” considers all the current conditions, makes reasoned predictions as to what is coming next, and plans accordingly. This is followed up with an honest evaluation of progress, making adjustments as necessary to keep on course.

In truth, you cannot see exactly where the road is going but you can make pretty good predictions on where your current path it is likely to lead. And this is where expert help is so valuable – you may not have the information you need to determine if you are on the right road, but an expert does. Advice from an authorised financial advisor can help ensure your course is in alignment with your goal(s) – and if not, will help you change course and plan for those changes.

So, do you have any idea where the road you are travelling on is likely to lead? If not, maybe it’s time to find out.