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Mortgage broker Nick Chamberlain suggests that financial wellbeing requires not only being prepared for the present, but also a desire to make the most of opportunities in the future.
Have you ever sat down at the end of a long day and had your partner bring up that one subject you have been avoiding more than the nappy that's just released its odourous pungency though the living room? If the thought of having to delve into the horror of the household budget is too much to bear, and you'd prefer to hide beneath the sofa, then it's probably time to review what happens to all the money that comes in through the front door, then disappears quicker than a three-year-old at bathtime.
Conduct a financial health check
Having a young family is enough to worry about, without the additional stress of the world's melting economies. However, the most important economy is also the most local - the one that is under your roof.
When taking the time to review where the money goes, you need to start with a clean slate and be totally honest with yourself - count everything: Lunches, coffees, travel expenses, the weekly food shop, and the extra food purchases during the week to top up. I know my partner has a weakness for glossy magazines keeping her up-to-date with Hollywood's fashion, and I am habitually throwing money at my local café to feed my flat white addiction. These are the little costs that accumulate over time to create a small but definite dent in the household cashfow. Both of our "indulgences" combined can easily add up to more than $1000 each year. The New Zealand Federation of Family Budgeting Services has a useful budgeting worksheet available online at www.familybudgeting.org.nz , or you can always make your own.
Once you know how much you are spending, you can gauge how well you are prepared if ends stop meeting. If you can foresee a period of hardship, it is better to have the chance to approach the issue knowing you have the opportunity to seek advice and guidance. You can plan a strategy to deal with outgoing bills, and alert any companies you may have problems in making payments to. They may offer a structured repayment plan more suitable to your income cycle. Many organisations have advisors to help you. It is in their interest to receive the money, but they only know you need help if you tell them, and a call from you is better than the embarrassing call from them to chase arrears. Mortgage or income-protection insurance could bring additional peace of mind in uncertain times, so review your insurance coverage too.
Seize the day
Like any downturn, opportunities arise for those who never expected them. For many, the largest financial burden is rent or home-loan repayments. The altering property market has caused many tenants to reassess whether they want to continue paying their landlord's mortgage, or get onto the property ladder themselves. Families are also taking the opportunity to move into higher-decile school zones, without having to pay the premium once foisted on certain suburbs.
Property investors looking to start or extend their portfolio are becoming more active, as a glut of properties are being offered with the potential for positive rent returns. With the correct loan structure in place (seek the advice of a solicitor, accountant, and mortgage broker), the additional property could not only create tax efficiencies, but allow the astute investor long-term capital gains when the property market moves through its undulating cycle.
For homeowners with loans fixed for a longer duration on higher rates, the questions commonly asked are, "Should I break and get onto the lower rate?" and "What will the cost be?" Yes, there may well be a cost borne by the homeowner, such as the cost the lender calculates to recoup the difference in the funds they loaned out at a higher rate. Like any business that enters a written agreement with a client, it will seek to recover any losses if that contract is broken, and this is where the bank is entitled to pass on the loss to the client.
Take professional advice as to whether moving to a cheaper rate gives you a beneficial advantage. For example, if it costs $5,000 but can save you $10,000, then it's worth reviewing. Each case must be treated individually, and you may find the cost of the ERR outweighs the benefit. However, you may also find that the difference the lower interest rate saves you long-term, and also short-term, with your weekly budget liberated by the decrease in the loan repayment, is worthwhile. If you do not feel that your bank is going to give you an impartial overview of what could be best for you, contact an accredited New Zealand Mortgage Brokers Association specialist who can.
How am I going to get ahead?
* Make a budget and stick to it. Be honest and include everything, especially those little indulgences!
* If you want to get out of renting and into your own home, then opt for the advice of an NZMBA accredited mortgage broker who has contracts with a number of lenders, or talk to your bank. To locate a local mortgage broker, visit the New Zealand Mortgage Brokers Association (www.nzmba.co.nz ).
* Seek professional guidance if you are looking at breaking out of an existing fixed-rate loan agreement. There could be associated costs, but there could also be substantial savings. Thorough investigation is needed.
* Consider whether now is the time to for an investment property portfolio, and if it would suit your lifestyle or future plans.
* Look into a full financial review with a trained wealth advisor.
Look on the bright side
As we plan for our financial future, we wonder what lies in store for us and how it may impact on our lives. It is easy to listen to the naysayers and gloom merchants and be disheartened. However, if you set aside time to form financial contingency plans, the possibilities of home-ownership for first time buyers, or the capability to upsize for those already on the ladder, are realistic options without too much strain, and come with the great rewards of knowing that you have truly provided for your family.
Nick Chamberlain is an accredited member of the New Zealand Mortgage Brokers Association and is a mortgage broker at LoanMarket in Auckland. He has a wife and two children, one at primary school and the other in childcare, so understands the financial stresses and strains families are subjected to.
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