Rising interest rates are bad news for first home buyers and borrowers alike, with new homeowners and investors (those who bought homes in the last 18 months) facing much higher mortgage repayments for the first time. With the Reserve Bank of New Zealand signalling further interest rate hikes are on the horizon, how can we avoid placing strain on already tight budgets and stay on top of bigger mortgage repayments?
Check what mortgage you are currently on
The first step is to determine how your current mortgage is structured, as interest rate increases will affect the floating portion of your home loan, as well as any fixed interest rate terms that are ending that are going to be refixed. If you’re not sure how your home loan is structured, contact your lender or mortgage adviser to help you work through the details. It’s worth booking in a home loan restructure check in with a Mortgage Express branded adviser, to ensure you’re getting the best deal available to you, and that your home loan is structured to fit your requirements.
Determine how interest rate increases impact you:
Now that you know how your home loan is structured, your mortgage adviser can help you determine the
impact any interest rate rises will have on your home loan repayments. You can also use a home loan repayment calculator – like this one – to work out what your repayments are going to look like. If your fixed rate term is nearing the end, now is a good time to discuss with your mortgage adviser locking in an interest rate. It’s also worthwhile comparing how your interest rates stack up against any other deals in the market, and this is something else your mortgage adviser can help you with.
Devise a plan to help you manage higher repayments:
The Reserve Bank (RBNZ) has warned that a noticeable number of households that borrowed for the first time in 2021 will find it difficult to pay their mortgages and cover all their other usual expenses. If you’re in this situation, start building up a savings buffer now to help you manage the higher repayments you are going to face in the year ahead. Take a close look at your budget to identify the expenses you can cut out or ways in which you can boost. your income. Check that you’re getting the best deal for utilities – power, internet and phone – and pay down any high interest debt as soon as you can to help free up extra cash to divert into your home loan.
Get expert advice about your financial situation:
With more interest rate hikes predicted, it’s important to have a financial plan in place to help you cope with higher mortgage repayments. As well finding ways to cut back on unnecessary spending, building up a savings buffer could help you prepare for higher costs ahead. If you’re concerned about the impact higher mortgage.
Here are some tips for trimming the cost of your mortgage from our partners at Mortgage Express. As a property owner, paying off your mortgage before you retire is important. Once you hit retirement age, the last thing you want is to still be saddled with debt. Here are some ways to help reduce your total mortgage and essentially help you pay less for your property.
Shorten your term
Reducing your mortgage term to 25, 20 or even 15 years shaves thousands of dollars in interest off the total. Even reducing it by one year can save you money. For example, if you borrow $500,000 at 4.00% interest over 30 years, your interest on a principal and interest loan amounts to $359,348*. Shorten your mortgage term to 25 years and you reduce your total interest to $291,755*. Of course, this means your regular repayments will increase, so make sure your budget can accommodate this or you’ll need to alter your spending habits.
Make additional payments
If you can’t afford to shorten your mortgage term, keeping a portion of your mortgage on a variable rate or having a revolving credit mortgage, which works much like an overdraft, may be the answer.
Look out for refinancing deals
Look for refinancing offers with more flexibility or a better interest rate. Be sure to factor in any costs for refinancing when considering this option.It’s worthwhile reviewing your mortgage on an annual basis to ensure you’re getting the best deal. Your mortgage specialist can do a financial health check and help you find savings.If interest rates drop, keep repayments at your current level, rather than be tempted to spend the savings. By doing this, you’ll shave off a substantial portion of your loan principal.
Each product provider has different policies and costs around paying extra amounts off your loan, so get in touch with your local Mortgage Express adviser to find out more.
Anti-Money Laundering Implications
From 1 January 2019 Real Estate agents will, among other things, be required to verify the identity of their clients in accordance with AML/CFT legislation. This is called Customer Due Diligence (CDD).
This means they are required to identify who their clients are (i.e. who they are acting for). This could be individuals, companies, trusts, or other client types like societies and government departments etc. This means asking for information to verify your full name, date of birth, and residential address. This can be done in several ways but, not unlike the banks, they will ask to see identity documents like your Passport, Driver Licence, utility bill etc. In some cases, they have obligations to establish source of funds and wealth.
All real estate agents in New Zealand have legal obligations to comply with the AML/CFT legislation and will be requesting more documents and information than they have in the past.
Please show some understanding as these are new procedures and obligations that have been introduced into the real estate sector. This is a major change for the industry.
If your real estate agent cannot verify your identity in line with the legislation, they may not be able to act for you. More information about CDD is outlined below.
Please note – If you are purchasing property you are not deemed a client of the real estate company (unless you have engaged them as a buyer’s agent) however, your lawyer also has AML/CFT obligations and may need to complete CDD. We encourage all purchasers to engage early with lawyers in any sale or purchase process. See ‘Documentation you may be asked for’ below for an outline of the things that may be requested.
Who do Real Estate agents need to complete CDD on?
They must identify and verify:
- the client;
- each beneficial owner of the client; and
- each person acting on behalf of the client including the authority to act on behalf of the client e.g. a lawyer or representative giving instructions on someone’s behalf.
What is a beneficial owner?
A beneficial owner is any individual (natural person) who satisfies one or more of following:
- the individual has effective control of the client; or
- the individual is a person on whose behalf a transaction is conducted;
- the individual owns more than 25% of the client or person on whose behalf a transaction is conducted (e.g. direct/indirect shareholders).
What is effective control?
Effective control is the ability to exercise control or influence over a company or entity. Typically, this will be the directors of a company or entity or those who hold senior positions. It could also be those who are funding the company, so this is something else that you will need to consider, and where relevant, enquire about.
What information will they need to get?
As a starting point, the following identity information must be obtained:
- the person’s full name;
- the person’s date of birth;
- if the person is not the client, the person’s relationship to the client;
- any additional information prescribed by regulations.
This can be done several ways but not unlike the banks, they will ask to see your identity documents like your Passport, Driver Licence, utility bill etc.
What is the nature and purpose of the business relationship?
Your real estate agent is also required to get information on the nature and purpose of the proposed business relationship with you. This includes understanding what you are trying to achieve, how much business is expected, and how regular your interactions will be.
Source of funds/wealth:
In some cases the Real Estate agent will need to establish the source of the funds for the transaction (i.e. where the funds have actually come from) and source of wealth (i.e. how those funds got there in the first place and how was that money obtained)
Documentation you may be asked for:
The below gives an indication of some of the documents your real estate agent may ask you to present in person or as certified documents as part of this process:
Passport, NZ Firearms Licence or NZ Driver Licence with another document such as a bank statement or statement issued by a Government agency. You will also need to provide a document with your residential address (for example, a utility bill)
The Trust Deed and, for trustees, and settlors, the information required for individuals as noted above, together with information regarding the Trust’s source of funds or wealth. Additional information may also be required for beneficiaries. Information regarding source of funds or wealth may also be required.
Details of the company, together with the information for individuals noted above for every individual with more than a 25% shareholding, all individuals with effective control of the company and all individuals acting on behalf of the company. Information regarding source of funds or wealth may also be required.
The above list is not exhaustive and is indicative only. Your real estate agent will assist you with the specific requirements in relation to your situation.
The information you are asked to provide will vary depending on whether you are doing business as an individual or part of a partnership, company, public body, estate or trust.
Businesses are not doing this because they think you are laundering money – they are doing it to help protect everyone and because they are required to under the law.
Copy supplied by AML Solutions.
Client Advisory - Anti-Money Laundering
The Anti-Money Laundering and Countering Financing of Terrorism Act 2009 (the Act) has applied to financial institutions and casinos in New Zealand since 2013.The Act is designed to prevent money obtained through illegal means from entering the New Zealand financial system to be “laundered”. Although New Zealand is considered to be a relatively clean market it currently falls prey to an estimated $1.35b in money laundering activities each year.
Since 2013, other non-financial businesses and professions have been captured by the act. Lawyers and Conveyancers and some businesses forming trusts have had to comply since 1 July 2018 and Accountants from 1 October 2018.
From 1 January 2019 entities carrying out Real Estate activities will be required to:
- have appointed a compliance officer;
- have assessed and documented the money laundering and terrorist financing risks the business faces;
- have established a programme to detect and manage any risks identified; and undertake a number of other specific tasks, including but not limited to performing customer due diligence when they enter a relationship with their customers (or vendors as described by the Real Estate Agents Act 2008).
At its core, Real Estate Agents need to identify who their customers (vendors) are and this is required before the agency work commences. When the property is in the name of an individual, proof of identity is relatively simple to collect and is straight forward.
For properties that are held in companies, trusts or a combination of both, a more enhanced suite of requirements for due diligence is required. Where the Real Estate Agent cannot perform the prescribed level of due diligence, then the customer must not be onboarded and the listing cannot be accepted.
Following the inclusion of Lawyers and Conveyancers from July 1, property transactions have already been captured under Anti-Money Laundering/Countering Finance of Tourism legislation. From this date members of the legal profession are required to perform to the same compliance regime and perform the same levels of due diligence as mentioned above to the buyers of property.
Fast forward to 1 January 2019, due diligence will be required to be performed on the buyers and sellers of property. This will result in property transactions, particularly commercial property which often involves complex ownership structures, to become more onerous to navigate and more time consuming.
In the meantime, it is important real estate agents have systems in place by 1 January 2019 to ensure compliance with the obligations imposed them. Additionally, buyers and sellers of property, especially commercial property need to fully appreciate the new requirements of this Act and the impact it will have on their businesses.
Crombie Lockwood has worked through the process of obtaining cover under the Act for Solicitors and Accountants. Most insurers have provided some sub-limited cover for defence costs and civil pecuniary penalties arising from an alleged breach of the obligations imposed by the legislation. We will be looking to obtain similar cover for Real Estate Agents ahead of the compliance date of 1 January 2019.