Budgeting Archives - Mortgage Advisers - Mortgage Lab

Hi Heat pumps are great.  They are efficient and quick to work.  In fact, Energywise says that a heat pump is the most energy efficient way of using electricity to heat your home.

However a lot of people are wasting money by either incorrect installation or poor maintenance.

Give your heat pump a winter once-over

Dirty heat pump filters block the air from going through and make the process less efficient

Ok, you’ve already got a heat pump installed.  When was the last time you looked at the filters?

The filters get rid of the majority of dust and pollen from the outside (most NZ heat pumps are single-split heat pumps; getting air from the outside).  This is obviously important but means that the filters can easily become clogged.  When this happens, the motors have to work harder to push the air through (or it simply doesn’t go through as much).

For most heat pumps, you should be able to easily access the filters.  If in doubt, google the exact make and model of your heat pump and add the term “pdf manual”.  This should find the manual which will walk you through the process of removing the filters.

heat pump

It shouldn’t take more than a couple of minutes to clean the filters. You can now see the carpet behind the filters meaning the air will flow through nicely.

From there, a quick vacuum is enough to get the majority of the dirt from the filters.  You’ll see the change immediately.  Replace the filters back and restart your heat pump.  You should notice a 2-3 degree increase in heat from when the filters were clogged.

Heat pump settings

Now that your filters are clean, it’s time to get the correct setting.  It’s generally agreed that a setting between 18 – 20 degrees is the best.  Any higher and your heater will be using too much energy to get the air that warm (particularly if it is very cold outside).

Focus the heat

Because the heat from a heat pump is so efficient and quick, there’s not much need to heat rooms that you aren’t in.  If you decide to move rooms, just open the door and the heat should flow through.  Heating a 30 or 40sqm room is much more efficient than heating a whole house!

Purchasing a heat pump

An under-powered heat pump will not heat the entire house which will just lead to disappointment.  We’re aware of a few companies offering special deals on heat pumps but they tend to be the lower powered units.  Seek out advice on the correct power requirements for your particular house.  As with all things, a little extra money can mean a significantly better experience.

Installation of heat pump

The best time to save yourself some money with a heat pump is at the installation.  Correct placement of a heat pump is key to getting the air distributed and circulating throughout your house.  A reasonable price for installation is around the $1,000 mark (can be $300 either way depending on difficulty) but is well worth the price you are paying.  The money you save for good installation over the lifetime of the appliance will more than cover the extra installation costs.

Summary

We realise that the outlay costs of a heat pump are high but the ongoing electricity savings are good for your wallet (and the environment).  Get the correct model for your house, get it positioned correctly and check the filters every 2-3 months in winter (less often in summer).

 

 

 

Welcome to our First Home Buyers Questions and Answers session.

Have you ever been to a seminar hoping for lots of useful information and walked away not knowing anything new? What a waste of time! Our Q&A session means you get answers to all the questions you have.

Our Panel includes:

There will be no sales talk; nothing to buy; nothing to sign up to on the night. This is an information night so you can get all your questions answered.

Some topics we’ll most likely cover:

Feel free to come with as many questions as you like. You should leave the session comfortable to move forward with the house buying process.

Doors open at 6pm and we will get questions started at 6:15pm. Parking is available in all Financial Design carparks outside. Come along early to grab some nibbles.

Powered by Eventbrite

In recent years, the Reserve Bank of New Zealand has implemented a host of rules on the banks, particularly around mortgages.  These rules have several purposes.

Some of them, like the LVR restrictions, are to stop the bubble mania of 2008 from happening again.  The days of lending 100% (or more) on a property are gone and not returning any time soon.

Some of the new rules, like the Responsible Lending Code, should just always have been there.  They require a lender to be able to hand-on-heart say that they were acting responsibly in granting a loan to the client.  Banks are calculating a mortgage at 7.5% to allow for future interest rate rises.  They also assume a 25% vacancy on rental properties which allows for some vacancies and other costs like repairs and maintenance.

These changes most often come up when a mortgage application is in, what I like to call, the “grey zone”.  The clients is just on the edge of what the bank are comfortable with.  Some examples of these grey zone applications are:

At first glance, none of these criteria are dealbreakers but the banks can only take on a certain number of these loans.  They also don’t want to be known for taking on grey zone loans.  If that happens, they end up holding a majority of those loans in the country which is obviously not preferred.

How do the banks decide who to give “grey zone” lending to?

Ask any Mortgage Adviser at the moment how to get a difficult application through the banks, they will answer the same way.  A bank is more willing to lend to an existing customer than bring on a new customer.  They have a lot more information on an existing customer and they are much more able to make informed decisions.

I have accounts with lots of banks.  What constitutes an existing bank customer?

Banks count themselves as “your main bank” if your salary goes into one of their accounts.  I know most of you have just seen a workaround but unfortunately this needs to have been happening for at least 3 months (sometimes 6 months).  Don’t think you can change your salary payment tonight and be an existing client tomorrow.

Couples should use separate banks

It’s therefore a good strategy to have couples, who are looking to buy in the future, put their salary into different banks.  You can still have a joint account but my suggestion is that you put your salaries into completely different banks and then transfer the money into the one account.  Maybe put your personal spending through the different banks to really show that you are an existing customer.

With this strategy, you’ve now got 2 banks who think of you as an existing customer and are likely to be a little more lenient on you if you have to push the limits of their lending policy.  A Mortgage Adviser will still be able to tell you which bank is better to approach first.  Either way, with this strategy, you’ve doubled your odds of a successful outcome.

 

Repeat after me.
“The interest rate I pay on my mortgage is 8%…”
“The interest rate I pay on my mortgage is 8%…”

No it’s not

You’re right, it probably isn’t.  If you’ve refixed your mortgage at any time in the past 5 years, your mortgage is likely under 6%.  But here’s the thing.  You should be aiming to pay your mortgage as though it was 8% because at some point your mortgage will be there again.

Let’s look at an example of a couple with a $400,000 mortgage that is fixed for a year at 4.2%. Payments are around $470 per week and that’s comfortable for them.  But we don’t know what the future holds and so we need to plan for interest rates to go up.  So if we pretend the mortgage is at 8% we can set the payments at $691 per week.  This has a couple of benefits:

The key is to get used to higher payments.  At some point in the future, interest rates will rise and you will be well positioned to cope with it.

What if you can’t pay 8%

I know increasing your payments on a mortgage seems unachievable but the good news is, you don’t have to do it today.  You just have to aim to have them there in the future.  Here are a few steps that may help you transition to the 8% mortgage.

Step 1

Using our mortgage calculator, calculate what your mortgage payments will be at 8%.  That’s now your goal.

Step 2

Every time you get a pay rise or cancel an expense payment, increase your mortgage payment.  If you got an increase (after tax) of $40 per week in your pay, increase your mortgage payment by $40.  Did you just cancel your cable TV and get a cheaper streaming channel? Use the savings to increase your mortgage payment.  Did you just pay off a Hire Purchase or Car Loan?  Those payments can now go onto your mortgage.

You will be surprised how often we receive these little increases but use them to buy unnecessary things.  Smashed avocado is getting most of the blame these days!

Step 3

Make sure your mortgage is setup correctly to allow you to pay extra money without being penalised.  We could write a book on correct mortgage structure (it would be a very boring book!) but for this purpose, you will probably want to use a Revolving Credit account so you can put extra money in without incurring a break fee.  Make sure you don’t have an eftpos card attached to this account, otherwise you will just spend the money.  The goal here is to overpay the mortgage remember!

Summary

Make it a goal for this year to get your mortgage payments up to an 8% mortgage.  It’s ok if you can’t do that now.  Make it a goal for the near future.  Investigate what you could remove from your expenses to increase your payments.  You may like to check out our blog on the amazing budgeting Pocketsmith app or go to Pocketsmith.com.  (Note, we don’t receive any compensation from Pocketsmith, we just really, really love it and it’s NZ friendly!).

 

Could parents use KiwiSaver as a method for rewarding children in the form of pocket money?  Read on to see how one of our clients is not only successfully doing it but also teaching their children about the magic of compound interest.

Compound Interest

Whether Albert Einstein ever actually said that compounding interest is the eighth wonder of the world is debatable.  Regardless, the sentiment grows increasingly more and more true every day (see what I did there).

Compound interest is the effect of invested money receiving regular interest payments that are reinvested and allowed to grow.

For a simple example of this, let’s look at $100 invested at 10% per annum (a high interest rate but easy to calculate).

Day 1 – $100
1 year – $110
2 years – $121
5 years – $161
20 years – $739

So an investment of $100 has increased to over $700 in 20 years and will increase by another $73 the next year.  We are almost at the point where we are doubling our initial investment every year, all thanks to compound interest.  If you had simply left in the $100 and taken out the interest, you would have received $200 of interest and still only have your original $100.

Saving for young children

It shouldn’t come as a surprise that putting money aside for young children is therefore going to result in huge returns for their retirement.  Let’s look at an example of $1,000 of savings put into an investment fund for a newborn.

Let’s assume the savings will average 10% return on this fund but let’s take off 2% to allow for tax.  So an 8% return over 65 years would mean a total savings of $178,000 upon retirement.  While this isn’t enough to retire on, it shows how $1,000 can change into a much larger amount given enough time.

There are 2 thing to really acknowledge here.

Don’t put it off

Leaving it until later in your child’s life significantly reduces the amount saved.  $1,000 given to a 20 year old – as opposed to a newborn – will mean ~$36,00 in the fund at retirement instead of $178,000.

Regular small deposits can massively increase the end result

If you can afford it, even a small regular deposit will grow your child’s retirement savings.  This is all thanks, again, to compound interest.  Remember the initial deposit of $1,000 which became $178,000 at retirement.  Well, if we add another $20 per week onto that for 65 years you have deposited a total of $63,400 into the fund however that fund has grown to $2,318,000 (based on the same 8% average growth).  At this stage, we’re talking serious money to retire on.

Pocket money and KiwiSaver

So, if pocket money is one of the methods you use to facilitate family-based child-slavery, then consider putting some of that money into KiwiSaver.  Notice I say some of it.  Children don’t wash dishes on the promise of an easy retirement in 50 years time.  You’ll probably need to give your child some actual money too.

But it’s a great opportunity to teach your children about interest.  For this article, I have been using this compound interest calculator.  Feel free to play with it. Here’s an example that might encourage the savings bug.

Let’s say your 10 year old child has $5,000 in their savings.  You’re putting $20 into that fund per week (in the calculator, I put $80 per month).  The calculator is showing a total of $1,358,934 at retirement in 55 years.  What does it show if they deposit one $20 note into that fund?  Not multiple, just one note.  The answer is $1,360,540.  A difference of $1,606.  $20 put into their fund today gives them $1,606 at retirement!

Summary

I know that pocket money put into a savings account or KiwiSaver will not thrill most children.  I can hear parents screaming at the screen right now.  But I do suggest taking the opportunity to show them what a little savings means for their retirement.  The calculations haven’t taken into account purchasing houses in their early adult life and all other sorts of life events that will affect their savings.  The bottom line is, however, the sooner you can start putting money aside for your child’s retirement, the easier it will be for them.  All thanks to the magic of compound interest.

Join The Mortgage Lab, Share NZ and Kendons Accounting for an hour  of industry learning.  We’ll also have beer tasting from Boneface Brewery Co and catering by the award winning Island Bay Butchery.

Best of all, you’ll earn LBP points for attending.

Where: Mitre 10 MEGA, Upper Hutt
(in the Trade Drive Thru)
When: Wednesday 14th March 2018
Time: 4:30pm
RSVP: terri.maguire@sharenz.com, 0275 0275 19

Click here to download the brochure

Purchasing your first home can be confusing.  The key to being ready to buy is to be organised.  Here are 3 things that first home buyers can do today to get ready to apply for a mortgage.

Order their Credit Report

Ordering your own credit report is free.  You can a nice and simple indication from Credit Simple or you can get the whole report (I recommend this) from Equifax. This second option can take a couple of weeks (my latest one turned up in 4 days though).  This will allow you to see exactly what the bank is going to see about your history.  If anything isn’t correct, now is the time to address that.

Tidy up your spending

Look through your last 3 months of bank statements.  Are you spending more than you earn or going beyond the limit of your bank account?  This is called going into “unarranged overdraft”.  To a bank, these 2 words send up a big red flag.  Once is usually ok, but more than that and getting a mortgage is going to be difficult.

You can limit how often this happens by setting up a spending account with automatic payments going out.  You’ll know exactly how much is going to be spent and how much is in the account.

Key point: don’t have an eftpos account attached to this expenses account.  You’ll end up over spending and going into overdraft again.

You can download a copy of The Mortgage Lab’s Excel Budgeting Spreadsheet here.

Get proof of your income

The bank is going to want to see your income and it won’t usually be enough to show them the money going into your bank account.  Banks like to see payslips because they show how your income is made up (ie; is it a base salary or commission).  The bank will usually want to see the most recent 3 payslips so if your HR department is a little relaxed in this area, get them working on it now.

If you are self-employed, you will need to have this year’s most recent Financial Statements (between October and March).  You can see our blog on when you need to update your Accounts.  Since Accountants are often busy, these can sometimes take a while to source so talk to your Accountant early.

Bonus Tip

If you’re ready to apply for a mortgage, it’s also time to look at your Life and Health insurance.  You’re going to be signing a contract for a large amount of money and need to make sure you can pay for it.  Find an insurance adviser who you like and feel is looking after your best interests.  We believe the best advisers only advise on insurance which is why we don’t offer it in our company.  They should be comparing several different products and choosing the one that suits you the most.

Summary

You can start getting ready to buy today by:

 

We all enjoy saving a bit of money, especially if you’re looking to buy your first home or if you’ve just got your first mortgage.

There are all sorts of convoluted ways to save money.  Some of them are easy (eg; ditch the expensive TV subscription and get yourself Netflix, Lightbox or Neon) and some of them are disproportionately hard (eg; setting up a grey water system to water your plants to save on Water Rates).

My initial budgeting suggestion for new “budgeters” is, pick the low-hanging fruit first.  And the easiest of all is to find what you’re paying too much for and find a place that sells it for less.  Groceries are a good example of this.  The price between supermarkets is astronomical for essentially the same product.  Petrol is another.

The Great Gaspy

This is where Gaspy comes in.  Whenever you open Gaspy, it will find you the cheapest fuel nearby.  And the range in prices is amazing!  For Diesel, my local price ranged from $0.99 – $1.17 per litre.  That’s an 18% difference.  Or to put it another way, if I normally spent $100 per week on fuel, I could save $936 per year by knowing the cheaper petrol stations around.

Now it’s not worth driving 30 minutes to save yourself $18 (or maybe it is!) but if you get in the habit of opening up the app when you’re below half a tank, then you are sure to pass a cheap spot sooner or later.

And as an added extra, the app summaries where the cheapest and most expensive areas are in NZ and it’s not where I would have expected!  You can find the link to the pdf here or you can generate the list yourself on the app.

If you haven’t tried Gaspy yet, give it a go and let us know how you find it.