Real Estate institute provides useful guide to mortgages for home buyers

Press, 23 November 1988, Page 61

Real Estate institute provides useful guide to mortgages for home buyers

The desire among New Zealanders to own their own home is strong and we have one of the highest per capita homeownership ratios in the world. For most people, this ideal of owning their own home is difficult to achieve, with many families living on the economic knifeedge to maintain a reasonable standard of living while meeting mortgage and various other home-running commitments. There has been a tendency for people to make a heavy personal sacrifice in their early years in either buying their first home or upgrading to a more substantial property on the expectation of freeing themselves of the financial pressure as their wage/ salary increases and job promotions produce even greater cash flow. However, there is a squeeze on. Unemployment has been increasing and many employers have become rather tight-fisted with expenditure in order to stay competitive in business. Those trends, together with the decline in New Zealand’s inflation, have combined to influence negotiated award wage settlements at a lower level than in previous

years. Therefore, with the reduced likelihood of getting much fatter wage packets, or increased gains for those fortunate enough to have investments, those people contemplating entering mortgage commitments which would leave them with little cash surplus should, more than ever before, proceed only after very careful assessment. They should seek financial advice. At the same time, any existing mortgagors (borrowers) coming under pressure to maintain payments and to meet all other liabilities should react positively and with urgency (again, they should seek financial advice) begore they are pushed into a real crisis. Mortgages can, in some cases, be restructured to ease financial pressure on the borrower and the Government has some programmes in place to help lower-income families under pressure. Others in an uncomfortable financial position have a number of options, two of which are “trading down” (selling up and buying a lower-value property) in housing, or capitalising on other assets, the objective of either choice being to end up

with a more manageable mortgage commitment. The Minister of Finance recently stated that the real estate industry could play a role in advising customers on their level of affordable debt. Members of the Real Estate Institute have always offered vendors and prospective purchasers advice based on their experience in the marketplace and their knowledge of current market trends. Where very specialist advice is required agents will refer vendors and purchasers to professionals operating in that field. However, advice can only be advice. Although there is a more concentrated range of specialist advice available today than ever before, it is the individual who at the end of the day has to make the final decisions. Most real estate agencies have a useful M.R.E.I.N.Z. leaflet available entitled Your Mortgage. This is a newcomer’s guide to the mortgage scene. Obviously, exact details on the cost of refinancing and the many flexible schemes now available to the consumer are best obtained from financial institutions themselves. The guide contains an analysis

on the repayment of principal and interest of a sample mortgage of $45,000 for a term of 15 years. Interest rates are given at 15 per cent and 10 per cent. These tables provide the reader with the extent of payments and show how clearly the cost of higher interest rates impact on the cost of finance. Anyone contemplating borrowing large amounts of money needs to study such information to avoid taking a plunge into substantial debt without being fully aware of their ability to meet all obligations during the full term of the loan. Remember legal fees and other costs are involved in taking out a mortgage. Advisers who will point you in the right direction in respect of mortgage money include real estate agents, solicitors, bankers, officers of financial institutions and professional financial advisers. These days the mortgage market is very competitive, with so many options available that the lenders can offer a package tailored for your current needs, with provision for adjustments to the level of repayments to meet your future circumstances.