Some New Zealand homeowners and buyers have no idea how much their mortgage repayments are, how much they spend a month, or even what credit accounts they have open.
Financial literacy and capability surveys regularly find areas where New Zealanders knowledge of budgeting, mortgages and investment has gaps.
A 2021 survey of Kiwis' financial capabilities found that New Zealanders scored highly when it came to keeping a track of money and understanding risk but scored near the bottom for keeping of control their spending and making informed decisions.
That lack of financial capability comes to the fore when applying for mortgages and buying homes. It’s not unusual for basic financial questions to leave buyers, say mortgage brokers.
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Below are some of the most common questions that Kiwis get wrong or find hard to answer. How do you think you'll fare?
1. Can you name your Kiwisaver provider, and put a number on your balance?
Most first home buyers use their Kiwisaver for a home deposit (in July 2023, nearly 3000 of them withdrew $95m from Kiwisaver to help with their purchase) but many are unable to name their provider, the type of fund they are in or their balance. This matters because it suggests they are not taking full advantage of their savings.
2. How much do you earn?
Mortgage broker Sue Tierney, from Sue Tierney Mortgages, is often shocked at how little home buyers know about their own financial situation: “I'm stunned when I'm interviewing people the number that don't know how much they actually earn. Some clients have no idea if they’re on a salary or an hourly rate.” That’s data they should have to hand when applying for a mortgage, says Tierney.
3. How much are your mortgage repayments?
Tierney says she also gets calls from homeowners looking to refinance asking how much their repayments are. A surprising number don’t know how to use internet banking and Tierney sometimes has to guide them through how to log on.
4. If interest rates rose by 2%, how much extra would you be repaying on your home loan?
Within the space of 18 months, the Official Cash Rate, which influences bank interest rates, jumped from 0.25% to 5.5%, with most homeowners moving from fixed term mortgage rates of around 2-3% to 7%-plus. So interest rates can go up - a lot - and current predictions are they will be higher for longer.
Banks have increased interest rates a lot of the past two years. Photo / Doug Sherring
Mortgage broker Campbell Hastie, of Hastie Mortgages, says he does get calls from clients who are are unable able to do rate rise calculations themselves. He points out that banks have mortgage calculators, which can help with different rates over different time periods.
5. Do you know how much money you spend a month?
Hastie says many of his clients are unaware of how much they spend. He gets them to go through six months’ of bank statements, line by line to categorise where their money is going. Prior to that exercise many clients have no idea where their money is going. Tierney raised an eyebrow when a client said his rates bill was $3000 a year. Rates bills aren’t round figures, and that client’s rates bill was in fact $4060 a year. Had he entered the wrong figures in a mortgage application, the loan could well have been denied.
6. How much can I afford?
First home buyers, and others, often don’t know the difference between a mortgage repayment calculator and an affordability calculator. Hastie says clients will use the bank’s repayment calculator to work out what their monthly repayments would be if they took out a mortgage. But then they find they don't qualify because they fail the bank’s affordability test, which is a different calculation and stress tests them on a higher rate than they’ll actually pay. The affordability calculators also take into account other lending buyers may have.
7. What credit do I have?
Existing credit including student loans, personal loans, buy now pay later facilities, credit cards, and overdrafts reduce the amount people can borrow. The more other credit a borrower has, the less they will be lent. “[Borrowers] often misunderstand credit cards and think because they chopped it up, that it no longer exists,” says Tierney. It’s the same with unused overdrafts. “They often don’t disclose these because they don’t understand that if you have an agreement in place, it can be used at any time to be used at any time.” It’s no use trying to ignore unused facilities because they will turn up on a credit check. It’s best to close them down.
8. Can I set conditions when I buy a home?
LJ Hooker agent Dylan Turner says first home buyers often know very little about the buying process and the contract involved. They have no idea they should get building reports done before buying a home. “They often don’t understand as well that they can make a purchase conditional on [for example] obtaining the finance,” Turner says. The other issue is that first home buyers often think they’re buying their forever home, whereas it’s really a stepping stone, he adds. “It’s like buying your first car. You’re not going to buy a Tesla. It’s more likely going to be a Toyota Corolla. But it’s a stepping stone to a better car. With a first home you build equity over a few years in your first home and can then buy a better home."
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