Loans | Finance | Mortgages

Archive for December, 2011

It is that time when the Credit card debt increases two fold as we come together to celebrate Christmas and the holidays. It is the time of year were people let go a bit and tend to overspend on gifts, lunches and of course alcohol. Although the kids like the presents, the lunches fill your belly and the alcohol keeps the Christmas spirit alive. The hangover on the credit card debt doesn’t go away as fast as the hangover from the eggnog.

New Zealand’s major electronic transfer provider Paymark released statistics this week on New Zealand’s spending habits. Kiwis have spent just under $3 billion at shops around the country between Dec 1 and Dec 20. According to Lafferty Cards Insights retail spending on credit cards in New Zealand during 2010 was 61.4 per cent. Projecting this data onto this year’s sales figures and that’s a staggering $1.8 billion New Zealand is spending on credit cards this Christmas.

How do you manage this credit card debt hangover?

One of the simplest solutions is to chop up the credit card to stop you using it, but this might not be possible. A more practical way to manage your credit card debt is to seek out 0% Interest credit card transfer. There are things to be weary of when you transfer your credit card balance of an old card to a new one.

Firstly, check how long the new credit card’s 0% interest will be. Secondly, ask the question of what happens when you purchase items on the new card. For example, a lender may offer a credit card balance transfer rate of 0% for 6 months when transferred from another card, however use this card for any purchases and you’ll be paying an interest rate of approximately 19%. The 0% interest does not apply to any purchases, and worse still the payments you make go toward paying off the balance transfer first.

This is where a lot of people get trapped. The enticement of the 0% interest on their transfer gets them through the door then they make good profit of your purchases.
It is important to read the terms and conditions of the credit card. This is normally in really small grey print on the bottom of their website. Westpac NZ is a great example of these. Sometimes this can be hard to find and hard to understand so if you don’t get it straight away either ask a friend or better still ask the bank directly.

The secret to managing 0% credit card balance transfers is to use them for just that, a way to reduce the interest on your existing card. Do not use this card for purchases on to store your balance at a lower rate while you pay it off… If you can do this, the 0% balance transfer will be beneficial to you. Remember though to watch out for handling fees etc. on the card as they may be excessive.
To quickly recap

A 0% Credit card balance is great if you use them to for only that in mind
Read the fine print before signing up
Check what the monthly fees are before you sign up
Evaluate each 0% balance transfer credit card offer and go with the option you feel works for your circumstances.

Once again GE Money, the consumer Finance company by General Electric is in the news. This time it seems they’ve breached the Fair Trading Act.

In an effort to make their deals sound sweeter they’ve made false misrepresentations in their radio and print advertising campaign. The campaign is aimed at luring (inviting) us all into a debt consolidation loan. This loan was aimed at consolidating all debts into one loan with seemingly lower weekly repayments.
This campaign was snapped up by the Commerce Commission as misleading conduct as it made false representations.

Graham Gill, competition manager at the commission said that analysis of the finances of the real-life customer used in print advertising showed that while monthly payments were initially reduced, they were substantially higher than the original loan repayments for the majority of the 60-month loan periods

GE Money admitted to breaching the Fair Trading Act, as they were not able to give evidence that any of the customers depicted were any better off financially after taking up the debt consolidation loan that was targeted at improving their financial woes.

As a consequence of this campaign GE Money will donate $60,000 to the New Zealand Federation of Family Budgeting Services. Aren’t all donations tax deductible?

Those poor people stuck paying back extra money. If only they knew this earlier.

GE Money willingly co-operated and admitted that they were in the wrong.

Read the full news article here

If you’re considering applying for a home loan, then you already know how daunting this process can be. You can save hundreds of Thousands by getting the right information about your home loan from the beginning. A home loan is like the ultimate ball and chain, except that your sentence usually last between 25-30 years. Taking out a mortgage is not something that you just want to rush into. You really need to do some homework to find the right home loan for you.

You have probably noticed that every bank and lending society advertise their home loan Interest rates in huge bold print everywhere you look. Sure this is one of the major actors that will drive your decision as to which company to use, but it shouldn’t be the only thing you consider. Lower interest rates means that you will be paying back less money each payment period, which is a win; win situation. The more money you can free up, the more you can look into other investment options with the spare cash, or you could choose to pay your mortgage down faster.

A few other big things you might want to consider when applying for your loan are.

Do they allow me to make extra home loan repayments?

Some institutions will encourage extra contribution towards your repayments; others do not allow it at all. This means that if you get that bit extra from your tax return or a bonus or even just choose to pay a bit extra each week to significantly reduce the life of your loan you can do that. If you can make extra repayments to your home loan it will mean massive savings over the life of the loan.
Here’s an example. If you take out a $300,000 home loan and pay an extra $200 per month. You will save $138,220.36 in interest alone. You will also have your home loan payed out 7 years and 5 months early. Definitely incentive to find a loan that allows extra repayments.

Do they use internet banking?

In this day and age it is almost mandatory that we all get on the Internet banking bandwagon. When making home loan repayments, the last thing we want to do is have to firstly find a car park near the bank and then stand in a queue every time a payment is due. Aaaaah, the beauty of Internet banking.

Can you get an offset account?

Put simply, an offset account is a savings account and a mortgage rolled into one. Your home loan is offset from the savings in your account, therefore reducing the amount of money that you owe, while still giving you access to your savings in an emergency. Put simply, if you borrow $300,000 and have $20,000 in savings, the interest is calculated on $280,000 instead of the full amount. This allows you to pay down the interest and the loan faster as it greatly reduces the repayments.

What are the ongoing fees?

This is a big thing to consider when applying for a home loan. Sure the interest rates may look enticing, but if you have a monthly fee whacked onto your home loan each month, it can be daunting. Some banks calculate fees annually, others quarterly and some monthly. Add up all the extra fees and see which product really works in your favour.

Some other things to consider when applying for a loan is the settlement costs, these will be revealed to you once you fill out the home loan application form. You will also receive information about the rates and terms associated with the home loan.

Hopefully you will consider all of these factors when looking into your home loan. The best advice I can give you is to shop around. Find a product that really works for you. Speak to a few mortgage brokers and ask all the questions. Get them to calculate your repayments with all the extra fees, interest rates and scenarios possible. Remember they’re meant to be working for you. A lot of them receive compensation from the financial institutions when they sell their products, so if they are being pushy about a certain product it might be wise to do some extra research. A mortgage is not something that you should go into lightly, especially if you can save hundreds of thousands by getting the right home loan for your situation.

This post will explain the simplest Savings plan I know if you need to save money. It really helped me to save up a deposit for my first home. If you have trouble saving money as you like to spend it too much this will work the best for you
You need three things for this savings plan to work.

1) A online only bank account that is different to your general account
2) A goal for your savings plan
3) Someone you really really really trust

Step 1)
For this savings plan to work you need to setup an online only account with a bank. ING direct is the bank I used as I normally bank with one of the big four banks. An online only account is normally high Interest savings accounts and they do not give you a bank card to use. That means you can’t just draw it out at an ATM. They only way you can get the money are to transfer it from your general bank, which always takes over night.

THIS REALLY HELPS WITH IMPULSE BUYS!

Step 2)
Once your saving account is setup, you need to setup an automatic saving plan. These accounts will allow you to automatically transfer money from you general account to your savings plan account. Make this happen the day after you get paid and make the amount manageable. You still need to live. I made mine a nice even $400 per month.

Step 3)
Set you savings plan goal. You need to be clear on what you are saving for. For example if you are using your savings plan for a heli-boarding trip in New Zealand then firmly set that in place. You can even change your savings plan account to heli-boarding so it is clear.

Step 4)
Find the person you really really trust. This could be your parents or your brother. It needs to be someone that appreciates your goal and wants you to succeed. In the example of the heli-boarding holiday, if you are going with someone make that person your trustee and you become theirs. Here is why? You are going to give your trusted person your account details and password. You need to tell the person to change the password so you can’t get into the account. This is the scary bit so it has to be someone you trust.

That is all you have to do to have a savings plan if you need to save money.

Okay, okay I will tell you why.

Firstly the automatic saving plan does all the transferring for you. Each pay day you know the money is coming out so you make sure it is in there. After a while you forget it is missing and you get use to spending a little less.

Secondly, you can’t access the money so impulse buys or random purchases don’t drain your savings.

Thirdly, this is the good bit. If you really need the money you have to ask your trusted friend to transfer it to you. As you set a goal for the money you feel like an idiot for asking, and the reason has to pretty damn good for the person to transfer it. Generally the needing to ask stops you asking and you find a way to get the money another way
.
This savings plan really works. I did it for a good year ad saved up enough for a deposit. I admit I did need to make transfer some over on occasion but I did my hardest to put it back as soon as I can. Good luck on your savings plan ventures. Oh and if you really need to save money put a picture of your savings plan goal on your wall. Every time you see it you will remember why your savings plan is in place.

For a more formal savings plan check out the page ‘A really good savings plan’

In NZ, it definitely pays to be educated about financial decisions, especially when you’re deciding which NZ loan is right for you. With so many loan options available to us, the decision can sometimes be overwhelming. It helps when you know what you’re looking for, so lets discuss them here. Rather spend the time getting educated than regretting a bad decision down the track.

I definitely wouldn’t be rushing into the first loan that comes my way, or even the loan that my parents recommend. What’s right for them is not always what will work best in your situations.

Here are the three biggies that you need to look for when choosing the right NZ loan.

Absolutely, the first thing that you should be sure of is the exact amount of money that you need. Work out your budget, exactly how much can you afford in monthly repayments? Will you be going without to get what you think you need now? You’ll be surprised how many people in New Zealand are willing to hand out money, even in tight financial times, there will always be someone looking to make some Interest back.

Second on your list is to check the repayment frequency, must you make weekly, fortnightly or monthly repayments. Generally speaking you’ll probably be looking for a repayment schedule that matches up to your pay schedule. If you get paid monthly, is it wise to get a loan that needs weekly repayments. This is most probably not in your best interest. You want to ensure that there is always going to be money in the bank when a repayment is due. Likewise if you get paid weekly and have to splurge on a massive repayment every month, you’ll need to make sure that when this payment is due, you won’t be eating baked beans for the week cuz that’s all you can afford. The repayment frequency will help determine the repayment amount. In most cases, if you do choose weekly repayments, you will pay the loan down a little faster and save interest. You really need to decide which frequency works better for you.

Third checklist item to look into is the interest rate. This is something that is often overlooked or ignored. Sounds silly but people choose rather to just accept the terms, as they feel that they have little control over the interest rates. Well true they do fluctuate more than a teenage girls idol crushes, but with a little work, and some research, you can manage interest rates. Many NZ lenders offer different rates, and if you provide less of a risk to your creditors they will usually have a few different options. In some cases the interest rate is quite negotiable if you have a good credit rating, and depending on the amount you borrow and the life of the loan, you might be quite surprised. Obviously the current interest rates will have a lot to do with the terms of your loan. You’ll need to decide if a fixed interest rate or variable is best for you. It really is worth shopping around to find the best rate. It will save you a fortune over the life of your loan.

Now that you’ve been armed with the three must knows of New Zealand loans 101, happy shopping and may you find the best loan NZ can offer you with the best interest rate for you.

When choosing home loans, home buyers are presented with a choice a fixed rate or a variable rate for a small period of the loan. Normally the lenders offer you a fixed rate loan for a slightly lower Interest rate for a period of up to 7 years on the life of your home loan. The question is when is it a good time for a fixed loan and when should you choose a variable loan.

Fixed rate home loans
Fixed rate home loans are normally seen as very difficult to get out of. Generally you are locked into the loan and if the interest happens to go down you pay high break fees to exit the term. This can be frustrating with investment properties as accessing equity for additional properties is hard. They do offer less risk with cash flow fluctuation which can certainly aid budgeting.

Variable rate home loans
Variable rate home loans usually provide a lot more options for the borrower and greater flexibility, but unlike fixed rate loans they are susceptible to rate rises and rate drops. It is important to carefully budget for increases should they occur. New Zealand’s cash rate or baseline interest rate averages at about 8.75 per cent however it currently sits at 2.5%. Amazingly its record high was 67.32 per cent in March of 1985. A variable rate loan would have been a bit scary back then.

Which one is better fixed or variable?
The financial planners tend to feel that if that if there is trend of increasing rates in the short to medium term then fixing your loan may be a way to keep your interest rate low. As with any loan advice you need to get a loan that suits your individual circumstances and remember that there are often fees and charges on the loans that can make the payment higher that you originally thought.

Here is a video that might give you a feel on rate types. It is a little old as the rates are dropping not rising in New Zealand.

I remember back in the old days when Credit card debt was almost unheard of. Aaah, wouldn’t it be nice to go back to those stress free days when a person’s word meant something and all you really owed was a favour.

These days it’s a different reality, with so much pressure placed on us to have it now or be left behind. It’s easy to just whack it on the credit card and forget about it. Until you get the credit card statement that is; and are shocked to realize that you are in fact well in debt. Credit cards are no longer a luxury, are pretty much a compulsory addition to the wallet. Most people even have a few credit cards and balance the credit card debt between the two. Great concept, but this approach is a recipe for disaster. If you are knee deep in debt, instead of losing sleep focusing on the problem, try work towards a solution. Remember the goal here is to see a $0 balance each month, not just meeting the minimum monthly repayments.

If you are serious about getting out of credit card debt, read on, below are a few ways that you can help yourself manage your own credit card debt.

Make a realistic budget: This is the absolute first thing you should be doing. Start by dividing a piece of paper into two columns. On the left hand side you need to write down every cent that comes your way. If you get paid monthly, do it in a monthly format. If you get paid weekly do it weekly. Remember when calculating bills weekly to divide the monthly bills into weekly amounts.
In the opposite column you need to write all of your expenses. Fixed and flexible. The fixed expenses are the non-negotiable ones like, rent or mortgage repayments, education fees, car repayments and insurance premiums. Then list all the flexible ones such as clothing entertainment, beauty (for the girls, hair cuts for the boys), gifts, groceries, coffees, holidays, etc. If you have kids the gift costs can be significantly higher than you think, especially when you budget for all of their friends birthday presents in there too. (You will learn the value in regifting.) Now evaluate your list and identify the necessary expenses, you need to be able to cover these costs. Once you get a clear idea of the exact amount of income you need to cover the necessities you can find ways to cut costs in other areas. I’m not saying that you will have to go without entertainment; you might just have to find more affordable recreation activities. There are always ways to save money. If you look around there are many computer programs available for maintaining a budget and paying down debt.
Remember the goal here is to reduce your spending habits that got you into the Bad Credit card debt in the first place, if you can cut down even $50 per week in unnecessary spending and put it towards paying off the accumulated credit card debt you will start to notice changes immediately. You’ll actually start feeling good about being proactive and will not feel at all like you’re going without, once you realise that most of the money that we spend is actually on unnecessary things.

The next step is to contact your creditors: You might be surprised to find out that your creditors would rather see you succeed than default in your payments. Don’t wait until your accounts have been turned over to debt collection agencies. Contact your creditors immediately if you’re having trouble making ends meet. Explain your credit card debt situation and try work out a modified repayment approach. It is in their best Interest to work with you, and can help make a plan that reduces your monthly repayments to a manageable amount. By rights if you have car loans or home loans, your lenders will actually own the property or car and have rights to repossess these at any time should you default on payments.
If you can see that you might be defaulting on a car loan soon, it might be in your best interest to sell the car and pay back the loan. This will save you a lot of fees, because if they do repossess it, you will have to pay for towing and storage of the car while it is in their possession, and if you can’t do this they will probably sell it. Bearing in mind that if they do sell it, you will still be liable for the balance of the loan, something worth considering.
If you can see yourself defaulting on your home loan in a similar way, you really need to contact your financier. Most lenders are willing to work with you to find ways to make repayments manageable if they believe you are acting in good faith.

Hopefully this advice helps your situation a little; there are plenty of resources on budgeting. Subscribe to our RSS feed for upcoming tips on fantastic savings methods and advice. Here’s to a happy new year, new proactive spending habits and banishing credit card debt for good.

These days many New Zealand households have an Interest only loan setup against their investment property. The question is what is a interest only loan and is now the time to invest like that in New Zealand.
In an article by the NZHerald the reserve bank states that in New Zealand only 3% of household assets are in the form of shares compared with 73.8 per cent in housing. Although a lot of this property is principle places of residence there are also a lot of investment properties. Many of these setup as interest only loans.

What is an interest only loan?

An interest only loan is, put simple a loan in which you only have this interest against the principle to pay off, you never pay down the principal. For example let’s say you borrow $100,000 at 10% per annum. The interest per year would be $10,000. Divide that by 12 and you have a monthly payment of $833. This is just the interest and this is all you will pay. You never in fact pay back the $100,000. Sounds crazy right? The idea is that the property you buy with the loan increases and therefore you gain equity with the growth of the property.

In a traditional loan, each month your loan payment is divided in parts – one part is paid on the interest charge, the other on the principal of the loan. So using our example earlier the repayments would be $877 per month. Of this $833 would be interest and $44 would be principal. The proportion of principal to interest increases each month as you pay down the loan. Needless to say, an interest-only payment will be significantly less than a traditional loan payment.

Why use an interest only loan for investment properties?

As stated earlier the reason investor like interest only loans is because it makes getting the property more affordable. In New Zealand the interest portion of the loan is tax deductable which reduces the tax you pay each month. The idea is that as the property increased in value you make a profit. For example the property you bought for $100,000 grows by 15% in the first year. It is now worth $115,000, you still owe $100,000 so you are up by $15,000.

The power of an interest-only loan, according to most experts, is that you can ‘afford to buy more houses’. Because you’ll have more cash flow paying only the interest each month, you can effectively afford the monthly payment on a few houses given the offset of rental income to help you.

So is now the time to invest in New Zealand?

A second article by NZHerald in November 2011 states that the reserve bank is predicting a sharp fall in house prices driven by the latest financial instability. This would mean that you $100,000 property might drop 15% instead of increase. This would put you a loss. However property investment needs to be viewed as a long term investment. Property in general increased on an average of 10% when looked over 15 years. Although you may lose a bit in the first year, as long as you can met repayments investing using interest only loans may be a viable option.

Interest only loans are not for everyone, but they can be a valuable financial tool that can help give your investment power some added power. Don’t rush blindly into an interest only loan. Speak to a financial expert or loan officer about whether an interest only loan may be right for you.

If you have Bad Credit you may have heard of a credit monitoring service, hopefully we can help shed some light on what exactly a credit monitoring service is and how it can work for you. Simplified it is an annual membership service that gives you access to your credit report from the credit bureaus. With this service, you will also receive access to your credit score. This is the score that the lenders will look at when they decide to approve whether or not they will grant you the privilege of a Credit card or loan, whether it be a personal loan or a home loan.

The reason that you would sign up for a credit monitoring service is so that you can track your credit score as you improve your credit history. This way you can see if the changes that you are making are having any effect, hopefully a positive one on your credit score. The benefit of this is that you will be able to easily see what improvements are working and what aren’t.

Some of the better credit monitoring services will have tools in place that will give you an idea of what will work best in your scenario, for example, paying off your certain credit card. A very handy concept when you’re making an effort to fix your bad credit.

Another great benefit that some credit monitoring services offer is e-mail alerts, which can be set up to inform you of any changes in your credit report. This can be very helpful in detecting identity theft, which is the absolute worst nightmare for anyone.

A credit monitoring service can be especially handy in letting you know ahead of time if anything changes in your credit report. This is great if you’re applying for a home loan or personal loan.
By far one of the best services offered by many of the credit monitoring services is identity theft insurance. As a member of some credit monitoring services, you are insured for up to @25 000 in damages, if you are unlucky enough to have identity theft occur to you.

A credit monitoring service can definitely help those of us who are working towards repairing bad credit or are wanting insurance against identity theft.

The New Zealand Institute of Economic Research has found New Zealand economic forecasters are expecting a slower recovery than they were three months ago, given this slower recovery debt consolidation programs are good to aid in the management if you are making repayments on several different loans. The aim of debt consolidation is not to increase your debt but to make it manageable.

Debt consolidation loans are a way to make your weekly cash flow more manageable by giving you one monthly repayment, rather than several. In simple terms consolidating your debt is getting all your small debt balances, such as car loans, store cards and credit cards, and getting one long term loan to pay them all out. You end up with one overall loan that should decrease as the longer team debt consolidation stretches your payments. Add to this the lower Interest rate that normally applies to these loans and you are paying less each month.

There are a lot of organisations that have debt consolidation programs. With these programs the organisation works with you to come up with not only the best loan for your circumstances but also payment strategies to ensure you don’t accumulate more debt.

Things to note about debt consolidation programs

A debt consolidation program does not get rid of your debt. They just make it more manageable. Unfortunately the debt will still need to be paid back sooner or later since you do owe it, however your stress levels should remain a bit lower during the process.

It is important with these programs that you still focus on the debt, as these programs often make you feel that you owe less as you are repaying less. As you have paid off all your credit cards they will have a lot of free credit. You need to restrict yourself from using them. A couple of methods to do this is to not to carry them on you, this stop impulse buys. Some people even freeze them in a large ice cream container so getting to them is even harder.

Another thing to remember is that with debt consolidation loans you will overtime pay more interest. This is because the payment period is longer. To help with this any extra money you may get should help pay down the consolidation loan. For example Christmas bonuses could be split up so 50% pays the loan down and 50% can be spent on other things.

Of course there are other negatives about using debt consolidation programs. If you’re using a home equity loan or line of credit to consolidate your debt, the consequences of falling behind on the payments can be disastrous. If you fall short the bank or lender can repossess your property and leave you homeless.

How to choose a Debt Consolidation Programs

It is important to shop around; you need a program that fits your needs. Most people think that banks are the only resort; however other places to consider are credit unions. There are also a lot of specialized programs. If you are looking for one, make sure they are licensed, accredited and a non-profit agency. All of these are a reliable source and will most likely give you a fair deal. Be very cautious of scams, when searching the Internet for debt consolidation.

When searching for a debt management provider, look for experience, how professional the company is, their counselling and budgeting services. You want the complete package for managing your debt not just the funds. A good provider will do a full plan with you and monitor you on the path to paying it down. Try to find a local company so you don’t have to travel for hours to meet with them. This will encourage you to go more often and not skip appointments. Remember you need all the help you can get.

Scam artist are out there in the consolidation industry, they are waiting to charge you outrageous fees without your best interest in mind. When you find a few companies ask them for names of their customers and talk to them, they will be the best references. You should relate well with your counsellor and understand what they suggest. That peace of mind should help you pursue your goals and your financial future more comfortably.

Also the debt management company your choose should be a be advise you on how to deal with angry creditors, whether bankruptcy is an option or how to consolidate debt or simply reorganize your bill payment schedule.

Remember, your main goal is to work towards a better understanding of your financial debts. You will want to learn how to take care of your own debts, assets, and financial goals through your counsellor’s advice. The debt management and debt consolidation is only stepping stone towards your own financial self-reliance.