Well, this has been a strange week, and it has been difficult for me to work out what I should include in this episode. Not because I am struggling to think of things to disclose, but just that certain events that have occurred are a little bit sensitive, and I don?t want to let my emotions run away with me!
You see part of me doing this podcast has really opened my eyes into not just the world of financial management, but also human behaviour providing great reflection opportunities. You see one of the things I would like to talk to you today involves a dishonest, fraudulent act against, costing me money yes but it is not really the money side that has sparked the emotions it is around the issue of fairness or lack of.
You see during our UK trip, we hired a car and the contract we entered into I later discovered were fraudulently fabricated at the service desk and what has ensued has played out like a farcical pantomime performance, which is still not resolved so I won?t give all the details just yet, but I suppose it offers us two very quick lessons. Firstly when you are signing any documentation it pays to be extra vigilant, including holding on to all original documentation and secondly when you are wronged it is important to be aware of your own emotional state and be empathetic towards others, and hence I am not and never will rant about what has occurred in an emotional rage ? which to be honest would be very easy to do. Anyway so there is something to look forward to for a future episode, and hopefully, I can hold it together.
On a much, much brighter note, this week Leish and I refinanced our home loan. Which for me means, negotiation, negotiation, negotiation! You may already be aware that those advertised rates you see, even the specials can be negotiated including significant amounts of cashback. When we took out our first home as explained in a previous episode, we wanted to lock in a rate for five years as it was the first house Leish and I bought together shortly after we got engaged ? so we were willing to pay a premium for certainty. So with the carrot of a 5 year lock-in for the bank, after playing a few banks off each other we ended up with $6,300 cashback for a $654,000 home loan at 5.99% fixed for 5 years ? sounds an extremely high rate now but was reasonable at the time ? and house prices were taking off. 5 years on it is a different story, rates are much, much lower and our security needs are a little different as we have accumulated nearly $230,000 of savings since we took on our home loan and have a very comfortable amount of equity in the house, although house prices are pretty much sideways in Auckland at the moment, with variability occurring across the region.
So we have decided to pay down roughly $190,000 off our current balance leaving a loan of $420,000 to refinance, this will leave us at the end of this year with approximately $50,000 in savings as a buffer ? which would cover about one year?s worth of essential expenses, noting that our budgeted expenses are $70,000 annually when we refinance, which we would quickly get up to us we will save around $7,000+ per month. Ok, so what was our battle plan this time, well first and foremost playing banks off each other is always a good strategy, just takes a bit of time and patience and as you will have to fill in a separate application for each bank. But at least this gives you a good indication of where things are likely to go. It is also important to know it seems clear than banks will offer based on their perceived risk so all of our results will vary, but by getting comparisons from several banks, you will work out what level of offers are suitable for your level of bank perceived risk. So personally for us, I already know from the first loan that if you really push a bank and lock in for a long time, we can get nearly 1% cashback. From conversations with ASB last year when we were looking at purchasing another property, they were saying that they wouldn?t go over 0.8%, so for a shorter-term, this was the benchmark I had in the back of my mind.
As far as rates were concerned, this was pretty interesting. I used interest.co.nz to compare mortgage and savings rates, and I really suggest you do to as it is a great way to keep yourself up to date and educated on what the market is doing. So this time around, I could see very low rates from around 3.15% to 3.35% from offshore banks. I know for sure that the lowest, the Bank of China, would not offer any cashback, they are currently at 3.15% fixed for 1 and 2 years. So it requires sitting down with a spreadsheet and going to websites like sorted.org.nz and using their mortgage calculator to work out what is the best deal taking rate and cashback into consideration. Another consideration is that I would prefer our savings in the same bank we hold our mortgage with, and this is due to watching what happened around me in the UK during the global financial crisis back in 2008. Whether it holds true or not if our outstanding mortgage is more than our savings and the bank folds, I would just feel more comfortable if both the debt and the savings are in the same place.
So where did we end up? Well the very last bank we were dealing with went through our application, which got approved, and then the Kiwibank mobile mortgage manager emailed to ask what loan structure we would like and when we could meet, at which put in reply to the effect of:
?Note that our loan will probably be in the region of $430,000 as we will want to keep a buffer in our savings – I am sure this will not be a problem based on other pre-approvals we have.
To consider a move from Westpac, given the fee they will charge, the extra-legal fees for refinancing with another bank and given our excellent credit ratings we require 1% cashback and the best rate for either 12, 18 or 24 months.?
The end result was the easiest bank negotiation ever! Kiwibank came back with $3,600 cashback plus they would cover the legal fees for the refinancing, their rate would be 3.45% fixed for either 1 or 2 years. The cashback part of this offer was very significant as the cheapest conveyancing quote; I had for the refinancing was $741.30, so effectively that was a total cashback of $4,341.30. I did ask what loan amount the cashback was based on, as I had previously mentioned a loan amount of $390,000, but they came back to confirm that it is a fixed amount as they don?t work on percentage. So great, even at $430,000 this was just over 1% cashback, and I could fix for a much shorter term than our current loan. So happy with the cashback I noted that (of the NZ banks) currently SBS has the best rate of 3.39%, to which Kiwibank want to know the cashback. I mentioned it wasn?t quite as good, but my biggest concern with Kiwibank?s cashback was their clawback term of 3 years, which is not pro-rata, but we would wait for the pending OCR decision which was only due a few hours after this email conversation. When the OCR decision came through unchanged, I got straight back to Kiwibank to see if they would match the 3.39% from SBS, and they left me hanging for a few hours.
So in the meantime, I wanted to make doubly sure that we were getting the best deal so as Leish and I are members of property investment groups on Facebook I made the Kiwibank offer public. The response was almost unanimous, people thought we had a great offer, and some were even shocked at the level of cashback we were offered compared to the loan amount. The only thing one person though was that we could push the rate down to 3.39% which I explained I had tried and it was a wait and see ? and then I check my emails and could see that Kiwibank had agreed to the 3.39% – so I bit their hand off!
In addition to the cashback I also found out a friend had recently taken out a home loan with Kiwibank and before we signed up, he was able to refer me for an extra $250 cash for each of us ? bonus! So we duly signed the very next day, 3.39% fixed for one year, with $3,850 to be making its way to our new Kiwibank account either on or around the settlement date early December. Personally, for us we decided a one-year term in the current climate was best suited as the OCR could well be creased further next year which could bring mortgage rates down ? or neither could happen who knows ? that is the world of macroeconomic, financial uncertainty! But we are targeting to save another $100,000 on to of our current buffer by the end of December 2020, so our risk in rate movement is managed by being able to dramatically drop the principal amount owed in a year?s time. And look everyone is different and this is just what seems right for, and I suppose time will tell, but it feels like we are on the right track and we feel more secure than when we took out our first mortgage together. So please remember that mortgages is one of the big hitters on the journey to financial independence, so it really pays to invest your time and effort to understand what is the best deal for you at the time and how to structure your home loan and also remember it is not just about the cold hard maths it is also about how secure you feel and how well you think you are managing your risks.
Finally, being the way I am, this whole process also got me thing about how to maximise the opportunity that has presented itself with the $250 refer a friend deal. So I am taking to social media and this podcast so announce my friends if you would like an additional $250 cash when taking out a home loan with Kiwibank within the next 12 months, please email firstname.lastname@example.org and I will be more than happy to refer you! So on that money-making bombshell, until next time? Happy Fiday!