Buying a first house is a crucial moment for many of us. While it presents an opportunity to get that first foot on the property ladder, it also comes with a few responsibilities and risks.
If you’re considering entering the property market it’s essential to arm yourself with the right knowledge. You’ll be able to mitigate certain risks with a solid understanding of your financial situation, your mortgage options, and other key information on properties as you look to invest.
Assessing Your Financial Health
Before you start property hunting, the first step would be to get a good picture of how financially viable a home would be for you. If you’re going to apply for a mortgage the bank will want to know your credit score – typically a three-digit number that shows how well you’ve historically managed debt and credit.
Another key step is to calculate your income against your expenses, determining how much you spend per month, and how much you have to put toward a mortgage. Take the time to consider your lifestyle and how much you are willing (and able) to cut back, if necessary.
Fixed vs. Floating Interest Rates
Mortgages can vary in many ways, with a significant difference being how interest is repaid. One of the first decisions you’ll need to make is whether you want a fixed or floating interest rate.
In brief, a fixed interest rate will remain the same over a set period, while a floating interest rate generally change along with changes to the OCR. Each has pros and cons – in NZ, fixed interest rates are typically lower and less flexible, with more predictable repayments. This is an important choice, so it helps to take the time to understand both options.
Loan Structures and Repayment Strategies
Loans can be structured in several ways, each offering different features such as repayment terms or a credit limit. Borrowers usually have the freedom to decide on a loan structure that works for them – if you’re unsure on how to structure your loan, a financial adviser can help.
When it comes to managing your loan, it pays to have a good idea of how you will approach repayments, and why. For instance, increasing your repayments, or making additional lump sum payments, can reduce how long it takes to pay off the mortgage. A mortgage calculator can help you to visualise your repayment strategy and make informed decisions on your loan.
Deciding on Property
Once you understand your financial situation, you’ll have a clearer idea of what homes you invest in. Location has a massive impact on the value of a property, but what makes a location valuable? With a property in mind, be sure to spend some time researching factors such as:
- Schools: How close is this property to a school? What school zone is it in, and how popular are these schools? Even if school zones aren’t relevant to your plans, they still factor into the value of a property (and are subject to change).
- Crime rates: What are the crime statistics for the area? Is there sufficient street lighting? Does the neighbourhood have (or need) a watch program?
- Future development: What is the future of this suburb? Are there planned housing, commercial, or public infrastructure projects? How will this affect the property’s value?
- Routine: What would your commute time be like? Are there public transport options? What shops and activities are nearby?
There are many factors to consider – this guide by OneRoof sheds some light on determining a property’s value.
Keep Yourself Informed
The property market can move quickly – keeping up-to-date on the latest trends and changes can help you make the right investment. There are many great online resources, with NZHerald, Stuff, and OneRoof hosting sections dedicated to property market news. You can also check property listings and prices on Trade Me Property and Realestate.co.nz.
A mortgage adviser can provide valuable support by helping you compare rates, determining the appropriate loan structure for your situation, and guiding you through the application process. By educating yourself and working with an expert, you’ll be well equipped to enter the property market with the right mortgage for you.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.