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Mortgage News |
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September 2006 |
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Rates still remain unchanged this year, but what lies ahead? Our new regular quarterly economic wrap highlights the factors that influence rate movements and ultimately affect your mortgage repayments. And if interest repayments on credit cards and other loans are starting to put the squeeze on your household budget, we also look at some practical steps to managing debt. With interest still in mind, we discuss what homeowners can do to help reduce their monthly repayments on their existing loans, and consider how investors can attract the best tenants to support their property investment.
I hope you enjoy,
Your Name
XYZ Homeloans
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Attracting and keeping good tenants
The key to successful long-term property investment lies in finding and keeping good quality tenants. If you've decided to save the expense of a property manager, following a few basic principles should put you on the right track. |
Ask a fair rental
If you try and charge too much for rental you'll have less prospective tenants considering your property. So find out what the going rate is by looking at rentals for other properties in your area. Just keep in mind that even if you do manage to get tenants in at above market rates, it may not be long before they realise they're paying over the odds and go elsewhere.
Promotion
If you want to attract the right people, good marketing is essential. This means advertising your property in the places that the desired target audience is likely to be. It's also well worth taking the time to work on the content of your advert. Don't over promise or visitors will be disappointed, but make sure your property sounds attractive.
Make sure the advert includes all the key benefits, such as proximity to public transport, parking availability and security, as well as features of the property itself.
Perfect presentation
First impressions are everything. If people inspecting take a dislike to you or your property you'll never see them again. That means a clean, tidy and fully functioning property. Check electrics and plumbing for faults
and put all household appliances through their paces before
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prospective renters arrive for inspection. And after giving
the property a once over, make sure that you're also looking the part. A suit may be over the top, but ensure you're well presented - remember, as a landlord you're effectively running your own business, and your tenants are your clients!
Check references
Don't underestimate the importance of checking out a tenant's credentials, because once they're installed into your house it may be hard to get them out. Talk to previous landlords for their endorsement,
asking, for example, whether they paid their rent on time, if the property was kept in good order or whether there were any complaints from neighbours.
Show the love
Once your dream tenants have moved in, make sure they never want to leave. That means
focusing on making life easy for them as tenants, rather than for you as the landlord. Fix problems as soon as they occur, listen to reasonable requests, and never turn up unannounced. It is important
to visit the property, but once every six months should suffice. And as a final touch, drop a card and a bottle of wine round on birthdays!
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Need a mortgage health check?
Put your loan through its paces once a year to make sure it still meets your requirements. Here are four issues worth considering. |
Could I be paying less interest?
Although the interest rate alone is not the only consideration for choosing a loan, it makes sense to check that you're not paying
more for a product than you need to. There is always competition between lenders
to offer the lowest rate, so even if you had the cheapest loan a year ago, things may have changed. Before switching to a lower rate just make sure you take break costs into consideration, or you could end up worse off.
What's different in my life?
Has your personal situation changed over the last year? Maybe you've been promoted,
had a pay rise, or gone from contract work into a permanent position. Different mortgage products are tailored for different situations, so you may be better suited to a different loan. For example, if you were previously
self-employed, but are now a salaried employee, your Low Doc
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loan could be switched to a lower interest product.
Do I need to unlock equity?
Over the years you'll accumulate considerable
equity in your home as you repay your mortgage. But you may be able to tap into the value that's built up in your home without
having to sell. New Zealanders can use equity from their homes to fund many requirements
- from putting children through university to increasing assets through purchasing an investment property. As long as you are able to service the loan repayments, you may be able to borrow up to 80 percent of the value of your home without having to pay lenders mortgage insurance.
Could I be paying off my
mortgage faster?
Some mortgage products are designed to help motivated borrowers repay their mortgages
quickly. If you're striving to be
mortgage free, for example, there may be a more effective product than your existing loan to drive your mortgage down.
A 'Basic' loan usually comes at a lower interest rate, but its lack of flexibility may restrict certain mortgage reduction techniques.
Equity lines, off-set accounts, and redraw facilities all allow borrowers to pile extra funds into their mortgage on a regular
basis, which may result in taking years off your repayments.
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Dealing with debt
Understanding the difference between good and bad debt - and sticking to a budget - are the first steps to keeping your household in the black. |
Although many New Zealanders despise the thought of being 'in debt', debt should not always been seen as a negative.
Good debt can include anything you need but can't afford to pay for upfront, without wiping out cash reserves or liquidating all your investments, such as a property.
Alternatively, loans taken on items you don't really need (and can't afford) could be categorised as bad debt. Wherever bad debt arises, you'll find that a credit card is never far away.
So if you're concerned about rising debt levels in your household, what can be done to regain control?
Chop up the card - Once safe from temptation you can set about reducing the outstanding amount without adding to the problem. Remember, the minimum
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repayments on a credit card are designed to keep you paying interest for longer.
Work to a budget - Spot the gaps where the dollars have been leaking by recording what you spend each month. Once you know where your income is going,
you can set a budget to keep you on the right track. Note down all regular commitments,
including loan repayments. Anything that's left is your disposable income, although it's a good idea to try to channel as much of these funds into additional loan payments.
Change spending habits - Changing your behaviour is the only sure way to safeguard against slipping back into trouble. Stop impulse buying, which means making a list of items you need before going shopping. Also look for money saving opportunities, like taking a packed lunch to work, or cutting out the morning cappuccino. And if in doubt, be honest with yourself and ask 'can I really afford this'?
Consolidate debt - If you have multiple debts, consolidation may be the answer! One monthly repayment can be easier to
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manage than several. What's more, credit cards are charged at a higher interest
than most other loans, so it may be worth paying off the debt with one hit and switching to a cheaper rate. One option worth exploring is to consolidate debts into your mortgage.
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Get in shape for summer
Shake off winter lethargy and get in shape this summer. With a goal in mind and a positive attitude, sharpening up your fitness level could be easier than you think.
- Have a goal. Keeping up with the kids, shedding a kilo or two or simply feeling fitter - having an objective will keep you motivated. Put a time frame to your plan, but keep it realistic or you'll end up disappointed.
- Talk to your doctor. Tell them your goals and your fitness program - they may be able to help refine your plan. Take this chance to also note weight and blood pressure so your progress can be measured.
- Balance fitness with food. Take this opportunity to review your diet. A healthy balance of cereals, vegetables, fruit, dairy, proteins and fat is essential to compliment your fitness regime if you want to reach your goals.
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- Keep it fun. There's no point in committing to a five kilometre daily run if you hate jogging. Jump on a bike, go for a swim, or get involved in a team sport. And if all this sounds too much, a brisk walk for half an hour each day will make a difference.
- Listen to your body. If you start to ache, or feel pain... take a break. And if it persists see your doctor - you might have taken on too much.
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Economic round-up
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The Reserve Bank of New Zealand has left the cash rate unchanged this year at 7.25 per cent. However, considering the half per cent rate rise
over the latter parts of 2005, is the cycle likely to continue in 2006?
In late July 2006 the Reserve Bank Governor, Allan Bollard, said that the economy is generally in line with the Bank's monetary policy, though he felt that consumer and business activity "have not softened to the degree anticipated".
His comments indicate that rates are unlikely to increase based on current economic data. "Our medium-term view is for underlying inflation pressure to trend downwards," says Bollard.
He went on to say that economic growth should remain subdued and inflation is also expected to fall from four per cent in June 2006 to within the one to three per cent target range by the end of 2007.
While further rate rises are looking unlikely, can we hope to see rates start to fall? Probably not in the short-term as there are still a number of factors that threaten the likelihood of a rate cut.
Unemployment figures reached a 20-year low of 3.6 percent 1 in August. While good news for the workforce, a labour shortage can put pressure on wage increases, which can contribute to inflation.
World oil prices are also a potential threat to inflation, as higher transportation and production costs can result in more expensive goods for consumers and businesses. These factors both contribute to a
cautious approach from the Reserve Bank when it comes to considering reducing rates. Bollard said that "a sustained period of adjustment in domestic spending is necessary, and it will be some time before an
easing in the overnight cash rate (OCR) can be considered".
Homeowners, however, do not necessarily have to wait for rates to drop to pay less interest on their mortgage repayments.
It is well worth taking a look at what different lenders are currently offering on fixed as well as variable rates. Through refinancing you may be able to reduce interest payments and help pay your mortgage
off quicker. Just make sure that any break costs are justified by the lower rate, and look carefully at application fees as well as ongoing charges.
1 New Zealand Department of Labour
- Labour Market Outlook, June 2006
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Disclaimer. This newsletter does not necessarily reflect the opinion of the publisher. It is intended to provide general news and information only.
While every care has been taken to ensure the accuracy of the information it contains, neither the publishers, authors nor their employees,
can be held liable for any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this publication can be reproduced or
reprinted without the express permission of the publisher. Readers are advised to contact their financial adviser, broker or accountant before
making any investment decisions and should not rely on this newsletter as a substitute for professional advice.
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