# Securing the mortgage

Once you’ve gone unconditional at auction or conditional on offer, it’s time to arrange the mortgage for settlement. Whether you are using a broker or going to the bank directly, here’s some things to note.

### Prepare your financials

You would have done all this previously, but revisit your financials and get your income, expenses, and current assets lined up. This will make it easy for the bank to give you lending approval fast.

### The Banks

There are three classes of banks in New Zealand:

Ø  Australian Banks: ANZ, Westpac, BNZ, and ASB. They make up the majority of lending and are all pretty much the same when it comes to their rates and treatment.

Ø  New Zealand Banks: Kiwibank and TSB. These banks are usually a bit more competitive than the Australian banks but may have some drawbacks like their lending criteria and branch availability.

Ø  Chinese Banks: ICBC, Bank of China, HSBC. These banks generally offer the best interest rates, but tend to have other costs like requiring valuations, and application fees. They also generally don’t do cashbacks for your first mortgage.

### Interest Rate

The interest rate is what you’ll pay on the outstanding mortgage principal. This can be fixed for a certain time period, or floating. When you talk to your banker, they will arrange a loan structure for you that lets you decide the formula you want – e.g. you may want to fix $700,000, and float $400,000.

### Structure

You can have several home loans within the overall lending, and this is called your loan structure. So say you have a million dollar of lending, you can choose to fix 600K of it at various years and different terms, and float the rest. Speak to your broker / banker for genuine advice on what's best for you.

Here's a real-life example of my home loan structure to give you an idea. Again - note the different terms for different amounts. This helps you manage repayments correctly.

<table><thead><tr><th width="126">Loan structure</th><th width="109">Amount</th><th width="89">Rate</th><th width="90">Term</th><th width="151">Annual Interest</th><th width="149">Monthly Repayment</th><th width="94">Interest</th><th width="86">Principal</th></tr></thead><tbody><tr><td>Flexi</td><td> $          80,000.00</td><td>8.00%</td><td>0</td><td> $                         6,400.00</td><td> $                                     -  </td><td> $                   -  </td><td></td></tr><tr><td>6 months</td><td> $       225,000.00</td><td>6.89%</td><td>15</td><td> $                       15,502.50</td><td>-$                        2,044.37</td><td>-$       1,291.88</td><td>-$       752.49</td></tr><tr><td>1 year</td><td> $       543,000.00</td><td>6.85%</td><td>20</td><td> $                       37,195.50</td><td>-$                        4,221.61</td><td>-$       3,099.63</td><td>-$    1,121.99</td></tr></tbody></table>

### Term

The number of expected years of principal repayments is your mortgage term. Longer terms (like 30 years) mean you pay less in principal payments yearly but pay more interest over the term of your mortgage. A shorter term means you’ll pay more in principal payments, but less in interest over the term of your mortgage.

### Cashback

Almost all Australian banks offer a “reward” or “cashback” where they will give you hard cash for signing up with them. This is about 0.06 - 0.09%. When interest rates are low, this incentive can contribute a lot to the first year’s interest payments. Make sure you understand what this is, what comes with this – most banks will expect you to stay with them for 3-4 years in exchange and will claw-back their cashback if you leave before this.

In my opinion, ANZ has the best offer as they offer a 0.09% cash-back with a 3 year claw back. All the others are 4 years generally.

### Negotiating

We live in a capitalist society – be transparent and promiscuous with every bank’s terms – shake em’ all down and find yourself the best rate. Don’t hesitate to go back and forth with each bank. Almost all banks will offer a better rate than what they “card” on their front doors. Having a larger deposit will also make you more competitive.

### Carded Interest Rates

The rate you see advertised at a bank is what’s called the “carded” interest rate. In reality, the actual interest rate can be significantly lower. ANZ in generally offer their customers 6 basis points lower than the carded rate, and up to 75 basis points on floating rates. The banks create this opaque rate system to prevent other banks from competing with them. Basically, don’t say yes to the rate that’s plastered all over their walls, and don't feel chuffed when they give you a lower offer - someone is getting lower still.

### Reserve Rate Agreement

The RRA is a very important document - you are reserving an interest rate, and the minute you sign this, you're agreeing to bank with the bank. Only sign this document when you are ready to commit to the bank.
