With property prices in Auckland moving up quite rapidly, first time buyers are starting to find their savings don’t have as much buying power as they’d hoped. They might have started off with a solid 10% but the increasing value of property in their price bracket means their deposit has now shrunk to 9%. And at the rate things are going it’ll shrink some more.

The interesting thing about a lot of first time buyers is that they often have plenty of capacity to service a larger loan so this ‘erosion’ tends to go unnoticed.

On the Sunday programme I heard one commentator suggest property prices have another 30% rise left in them. If that’s true then the cash deposit first time buyers have today isn’t going to be enough tomorrow. It’ll be worse if the RBNZ imposes LVR caps.

The bank of mum and dad

A possible solution is a not so new bank you might be familiar with – the bank of mum and dad.

The idea is that parents allow the equity in their own house to be used to help their kids in a similar way to how property investors use equity to buy another rental property. This arrangement is a useful solution to plugging the widening gap between what you’ve saved in cash and your purchase price. I call it the bank of mum and dad, you might know it as ‘going guarantor’.

Clearly, having willing parents is key to this scenario! I also think it should be coupled with a commitment from children to pay down the total loan as quickly as they can so the parental guarantee can be released as soon as possible. The bank normally insists on this anyway by requiring a small chunk of the total loan to be repaid over a 5 year term.

Parents reading this will realise the obvious risk in this situation. That is that the kids can’t, don’t or won’t pay the mortgage for whatever reason resulting in a terse letter from the bank telling them to pay up.

Whats the risk?

That can happen but it’s very much a worst case scenario that can be avoided or mitigated with some due diligence by parents. The truth is that many parents are happy to consider the idea (and actually want to help) but they end up saying no because they don’t know where to start in terms of assessing the risk. Here are some pointers:

• Start with a frank discussion with the kids where you look at their finances and consider a realistic household budget together. Naturally the kids will enthusiastically prove they can make payments (that’s good) but look for a decent amount of surplus income left over every pay day too
• While it is totally possible for there to be no cash deposit at all I think it’s wise to see that the kids at least contribute something. Having skin in the game will boost their commitment.
• Look for a pre-approval from a bank so that you know someone else has looked at their creditworthiness and ability to repay X amount of loan. This should not be a substitute for your own checks though
• The kids might have some difficulty explaining how the whole deal is structured so talk to whoever is talking to them about it (their mortgage broker or bank person) so you understand it
• I’d insist on some income insurance so that if illness or injury prevents the kids from going to work money still comes in to cover the mortgage.
• Lastly get a legal opinion and limit the extent of your guarantee to say 20% of the total loan

At the end of the day parents have to make up their own minds.

The good news is that this is a totally realistic option and we’ve done several deals like this over the last 12 months to help first time buyers. In a market where rising property values are creating equity for parents I reckon it could become more popular too.

The post First time buyers could try new bank appeared first on Go2Guys Mortgage Brokers.

Life doesn’t stand still and neither should your life insurance. As you circumstances change over time, so do your life insurance needs.

Behind the scenes, life insurance companies are evolving too, their policies changing with new terms, conditions, coverage and pricing so a regular review of your policy is a good thing to do every 2-3 years.

Often minor adjustments are all that is required to bring your policy into line with your current situation (sometimes nothing at all) but on some occasions replacing your current policy makes a lot of sense.

Should you replace your life insurance policy?

Frankly, it can be really easy to conjure up a decent reason to move you to a new policy with a new insurer. But there are 5 key things to consider before you take the plunge.

Your health

Have there been any changes to your health since you took out your original policy? If there have and you apply for cover with a new insurance company then that condition may prevent you from getting a new policy (or at least mean you will get cover with certain restrictions or be required to pay a higher premium). By all means apply for a new policy just make sure you have a good understanding of the consequences a change in your health means. Be prepared to stay put.

Definitions

Have you read and understood the fine print? To be fair, most people rely on us for guidance in this department because they aren’t familiar with the jargon. The differences can be subtle, so subtle that the gain you get from moving may not be worth the effort or risk. In any case, the fine print needs to be understood – what will you lose and what will you gain?

Financial Strength

Will the company be there to pay your claim? This can be really hard for people to understand easily which is why a rating from a ratings agency like Standard & Poors is useful. Ask questions about who the company is backed by, it’s reinsurance arrangements and it’s previous history.

Cost

You get what you pay for in the insurance world just like everything else. That’s why we’ve talked about the above three items first – they’re more important considerations than just straight cost. Afterall, what use is a policy if it doesn’t work when you need it to?

There’s no doubt that getting a cheaper premium for your life insurance is good but even if the cover you’re buying is better you still need to check how the premium works. For example you may have a policy where the premium is fixed for a certain period whereas the new one policy increases with inflation or in line with your age.

If you’re ever advised or encouraged to replace your policy you need to be sure that it is the right decision and these are the rules of thumb to go by.

The post Life Insurance: Review. Refine. Replace? appeared first on Go2Guys Mortgage Brokers.

At $20 a pop, that bottle of Cab Merlot you like to quaff each week is worth $1040 a year

At $10 a day, buying lunch costs $2600 a year while food in the fridge is probably going off

One dinner out a fortnight ($70 each) adds up to $1820 a year

And your daily caffeine fix at $4.50 a cup is $1640 a year

We’re not saying “don’t waste your money on this stuff”. Hell, we like to do all of the above too! We’re just saying be aware of what you spend your money on and understand that a dollar spent is a dollar you can’t use on something else.

The post Food for thought – save $7,103 a year appeared first on Go2Guys Mortgage Brokers.