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Thread: Confused about NZ mortgages

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    Default Confused about NZ mortgages

    Hi All -

    I am confused about mortgage products available in NZ. Here in the USA I have what is considered to be a "conventional 30 year fixed rate mortgage". I see fixed rate products available from NZ lenders, but the term seems to max out at 5 years or less. Considering the amount I would need to borrow, I would not be able to afford the payments for such a short term. I've also read about what to do when your fixed rate term comes to an end. It seems to indicate that I would get a new loan for the remaining balance. Is there a residual or balloon payment left at the end of these NZ fixed rate loans? Comparing to what I understand a fixed rate loan to be, I would not have to refinance any balance; The loan would be paid off completely at the end of the term.

    I'm sure I must be missing something here, but I can't find any explanation about the NZ mortgage system on the internet.

    Please help educate me!

    Thanks,
    Brad

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    I was confused, too. As Taffy explained it to me, one refinances for the balance at the end of term. I'm supposing the payments are similar to what we have with a 30-year mortgage, but don't rely on my assumption. It makes sense for the lenders to have shorter-term loans, so they're not stuck with a super-low interest loan for 30 years. But it is a bother to have to refi every few years.
    If men had wings and bore black feathers, few of them would be clever enough to be crows.
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    Default Still more ?

    Thanks for the response Selchie, but I'm still confused. Based on the mortgage calculators I've seen on the NZ bank sites, there wouldn't be any remaining balance at the end of the term. Does that make sense?

    Brad

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    Hi,

    You would take out a 25 or 30 year loan as normal, with a fixed interest rate for 5 years or whatever it is which in turn means fixed repayments. After the fixed term is up, your mortgage then becomes a floating rate loan so the interest rate, and therefore the repayments, change according to the rate. The idea behind refinancing is to move your mortgage on to a new fixed rate should it be beneficial, or you can always leave it as it is as a floating rate for the remainder of the loan.

    Your loan remains as 30 years, it doesnt have to be paid off in the fixed term.
    Taffy

    The greatest mistake you can make in life is to be continually fearing you will make one.

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    Default Thanks!

    Thanks Taffy!

    That explains it. We call that an ARM (Adjustable Rate Mortgage) here in the USA. You get a teaser fixed rate at the beginning, and then an adjustable (floating) rate after the initial fixed period. Here a fixed rate loan is marketed as just that, a fixed rate for the duration of the term.

    So when I use a bank calculator in NZ, I enter something more realistic like 15, 20, or 30 years to calculate my payment, and realize that it will become floating after an initial shorter fixed rate period? The payment will change after the initial fixed rate period according to the new floating rate, but I can refinance after that if I'm not comfortable with the uncertainty of the rate?

    I think I got it. It's all a difference in marketing product names by the banks. Am I on the right path?

    Kind regards,
    Brad

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    Yep, you've got it
    Taffy

    The greatest mistake you can make in life is to be continually fearing you will make one.

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    selchie's Avatar
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    It sounds like I only remembered half of Taffy's mortgage lesson. Thanks for setting me straight.
    If men had wings and bore black feathers, few of them would be clever enough to be crows.
    - Rev. Henry Ward Beecher, mid-1800s

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    Default Understood

    Thank you both for your help!

    Cheers,
    Brad

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