What’s happening with NZ interest rates?
Filed under: Banks, Cost of living, Economics, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
Well, the short version is: they are going up!
The longer version is that it looks like we are the only sodding country whose central bank seems to want to increase base interest rates!
If you pop onto the HiFX website, they keep a running sidebar of Base interest rate announcements around the world. Not only do we still seem to have nearly the highest rates (other than Australia lol) but ours is going up when the others are holding.
Incidentally, thats also the page that tells you how bad the exchange rate is right now. Sorry.
There is some sort of good news in the papers today, it seems that Bollard – the governor of the Reserve Bank, may actually be stopping with these silly rises, because – guess what – the economy isn’t actually picking up as well as it needs to (well Helloooo! My Mortgage is getting more expensive – where the hell do you think Ive got any money to go out and buy stuff with!). And apparently – the employment figures here were supposed to improve , and they actually worsened. Now, Mr Bollard hasn’t actually said himself that he wont be raising interest rates – the “economists” have said that they think the chance is now 25% instead of 75% that he will raise them. But that’s the way it works – economists blather on for weeks before an announcement is due, telling us what the Governor is going to say, which always makes me wonder why the governor bothers with the announcements in the first place.
Theres a wonderfully obtuse piece of prose in the article which I just had to share:
“If the economy pushes along at near-potential rates of growth, the cash rate must head back towards neutral. Neutral is not 3 per cent,” said BNZ head of research Stephen Topliss.
I have absolutely no idea what the hell that means lol. What on earth is a “near-potential rate of growth”?
So what’s the bottom line?
Well, mortgages are more expensive. Floating rates are around the 6.15% – 6.75% range, up from about 5.5%. 2 years rates are around 6.75% and 5 year rates are around 7.75% for standard mortgages. The 5 year rates seem to be fairly steady at the moment, but the floating and 2 year rates have increased with the 2 rate rises.
Even if Mr Bollard doesn’t increase the OCR on the 16th September – I would be looking at factoring in some more rises if you are looking at needing to buy a home in New Zealand in the near future. He still seems intent of costing us a small fortune in interest and refusing to let us get ahead financially.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Arghhh – having to pay interest on the credit card!
Filed under: Avalon's Money Thread, Cost of living, Interest Rates, Credit Cards & Mortgages in NZ
Well, for the first time in five and half years – I cannot pay off the whole balance on our credit cards, and we will be paying interest.
This is quite depressing.
I guess I should be happy that its only likely to be a few months where we have to pay, and that we have been able to organise our finances so well for so long that we haven’t had to do this thus far while we have lived in New Zealand. But still – its damned annoying.
Especially since the interest rate is a whopping 19.95%
So – from here on in – hard nosed budgeting and spending restrictions to get us back on track as fast as possible.
Why has this happened?
Some really big bills I’m afraid. Despite the emergency fund, which I still have some left of, we have had some really big expenses come through and no income. The emergency fund is coving our living expenses and top ups on the rentals, but it cant cover:
- Some large medical bills.
- Set up costs for Hubby’s contracting business.
- Legal fees
- Buying furniture for an apartment in the city. (and yes – even though we have 2 houses worth of furniture – it still turns out we need a few things – that was a depressing moment!)
Hubby has income coming in now, but almost all of it is paying the setup costs: new computer, travel, phones, internet bills, city pad – it all adds up.
And at least this time I actually know what I’m doing. I know how to work through the budgets, I know how to cut costs, and I know how to stick to the harder decisions. One thing I am sure of – that debt is not going to be there long. Ill be paying money into it as soon and as often as I can.
I’m just not sure how to cut my coffee budget
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
And interest rates went up.
Filed under: Banks, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
Mr Bollard did as he was told by almost everyone that he would do and put the base rate in New Zealand up to 2.75%
I wait with baited breath to see what the banks do and how much is going to cost us all. Honestly – I do!
I thought it was worth sharing some gems from the article on stuff though – because its the kind of thing that is said so often, makes no sense, and doesn’t get challenged:
“With the domestic recovery on track, we expect the RBNZ will continue to hike the OCR steadily in 25 basis point moves at each meeting, barring a substantial deterioration in New Zealand funding costs as a result of the European soverign (sic) debt crisis.”
Um Ok, my mortgage has to go up becuase of something of that happened in Greece? I don’t live in Greece – I live in New Zealand! What next – a butterfly flaps its wings in Mexico and Im declared bankrupt???
Cameron Bagrie, chief economist at ANZ New Zealand, also expects the OCR to hit 5 percent over time.
I predict that one day I will die. I wonder if I can find someone to pay me to state the blindingly obvious. Rates go up, rates go down. At some point it will hit any number of numbers. Pick one – you too can be an economist!
“Along with ongoing growth in Australia and recovery in the United States, this has so far offset weak growth in some other export markets. Against this backdrop, New Zealand’s export commodity prices have increased sharply over the past few months, boosting export incomes.”
Sorry – even I cant turn that into plain English!
But basically – the banks will probably increase the amount of money they now want off you – cos NZ money just got more expensive. The reason they didn’t drop the rates when the OCR dropped was because Overseas money was too expensive. Either way – we get screwed.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Why exactly should interest rates in New Zealand go up?
Filed under: Banks, Cost of living, Economics, Interest Rates, Credit Cards & Mortgages in NZ
The reserve bank meets tomorrow to tell us all whether our interest rates are going up. I’m not really sure why they need to bother because as usual the papers and so called “experts” have already told us they will be going up.
But why?
Well basically Reading through an awful lot of very boring guff, it’s because things are getting better financially for New Zealand. And what better way to celebrate than for some arse to tell us our mortgages have to get more expensive. I mean- it wouldn’t do for us to go out and try and spend some of the extra money we all apparently have burning a hole in our pockets!
I know life isn’t meant to be fair, but come on Mr Bollard. This year we are already getting an increase in GST, and due to the new emissions trading scheme the power companies are going to increase our power bills and petrol is going to have more tax on it, even Air New Zealand is upping the cost of flights to cover it. And it’s not as if the banks are charging fair mortgage rates in line with the the reserve bank anyway. The bank fixed rates are the same as when the OCR was twice what it is now. And yet it almost worth betting real money that an increase on Thursday will be a perfect excuse for the banks to charge even more.
I just don’t get it.
They giveth with one hand and they nick it straight back with the other!
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
How much did we save on our mortgage exactly?
Filed under: Banks, General Budgeting, Interest Rates, Credit Cards & Mortgages in NZ
On the 8th February, we paid of one of our personal mortgages. It’s taken me this long to be able to blog about it because ASB wouldn’t send me the closing statements, and as soon as it was paid off (as in about 2 seconds later) the whole shebang disappeared off my internet banking. So I had no way of working out the numbers, or indeed proving that I had done it.
I was a bit peeved.
Well now I finally have the whole statement, from day one to the last day, with all the numbers. It makes good reading.
Now this was part of our original $265,000 mortgage that we took out to buy the family home. We split that into 2 bits – $100,000 was kept as a Variable rate Revolving Credit Mortgage, and the rest was kept as a Fixed Rate Mortgage for $165,000 – that’s the one we paid off.
- It started on 9th September 2005 with a rate of 7.42%
- The starting balance was $165,000
- The lowest interest rate we had was 5.42%
- The highest interest rate we had was 9.15%
- The average interest rate was 7.39%
- We took out a 20year term on it, but paid it in 56 months.
- Based on that – we should have paid $151,356 in interest if we had paid it at the normal 20year term.
- We actually paid $43,607 in interest
- We saved $107,749 in interest.
That’s seriously mind blowing!!!!
We still have $55,000 left to pay on the revolving credit part of the mortgage, but most months we don’t actually pay much interest on it because our savings sit in there and it doesn’t often go into a negative balance. It is at the moment while we have to adjust to Hubby’s self employed income, but its rare to have to pay interest on it.
Which is kinda cool.
You know – this was not easy to do, but it really wasn’t that hard either. And it was certainly worth the effort when you look at how much we avoid paying the bank from here on in. You know – having worked out that saving I think I need a cup of coffee and a sit down – because its one thing to know that that’s gonna happen. It’s a whole other ball game to know you actually did it.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Argghhh – Banks (again).
I dream of one day waking up and finding out that the people in charge of my banks in New Zealand actually look at their customers accounts and business before making blanket decisions.
It would be nice – just once – to be treated by a financial institution as if I was something more than the dirt beneath their feet.
Today’s frustrations comes from finding out that I have lost my Interest rate discount on my personal Revolving Credit mortgage. Of course – the bank didn’t bother to tell me this – that would be proactive and customer focused. Instead I found it out while doing my accounts and balancing my statements.
So I contacted my Personal Relationship Manager – who I have to say is exceedingly good, and I have absolutely no complaints about – to ask for it to be restored.
Except – as always – there’s some faceless ninny in a back office who says “no”. Faceless ninny of course doesn’t have to front up to pissed off customers – but hides in the back office and lets someone else take the heat for their stupidity.
So here’s the thing that makes said person in back office a complete moron.
I hardly ever pay interest on that account anyway. In fact last year –out of 12 months – I paid interest on only 3 months – most of the time the bank had to pay me because I was in credit. Things have been tight this year – so I have had to pay a little bit.
$429.60.
Since April.
My rate is 5.75, but with the discount would be 5.5%.
What this means is that over the same period – I would have paid $410.92. (Ha – see school maths and simultaneous equations really does come in handy every so often).
Now it would be worth the bank perhaps not giving a discount on a mortgage where someone pays a lot of interest – our original interest charges were nearly $1000 a month. But in this case – for the sake of $18.68 they have hacked me off, and I’ve written a blog about them.
And I’m about to pull my life and income protection business off them as a reward. That’s $220 a month in premiums down the toilet.
Never think you cant do something to get the banks back if they treat you like garbage. There are ways – and we can vote with our feet. It might be difficult with banks as they all seem hell-bent on trying the be as crap as each other – but hey – we can still try.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Avalon’s Money Thread: Am I a Big Spender?
Filed under: Avalon's Money Thread, Cost of living, General Budgeting
So in reality, do you just take out a certain amount of cash and try to make do with it? I try to do that, but almost always something unexpected comes up, such as filling a gas tank or topping up my bus card… Something that you can’t really delay. So can you tell me how do you control yourself?
Firstly you CAN work on a cash only budget and this works well for over spenders. But that is really talking about people who literally spend spend spend. A cash only budget is where you take out a set amount of money each week and that’s IT, is said to help by making people AWARE that they are spending their money. When you use Credit cards, you never see the real money so for many people it helps when they have to count out $20 bills to buy that $400 coat! This can be really helpful in getting over any “consumerism” habits you may have. Moving to New Zealand of itself won’t necessarily turn you into a non-consumer. Learning to spend less money isnt something you get by osmosis from Kiwis – who overspend as much as anyone else.
When you look at what you are spending the money on, ask yourself:
“Do I NEED this or do I WANT this”?
If you WANT it, it needs to wait till you have the spare money or it comes out of sanity allowance. If it’s a NEED, then budget for it. Then when looking at items you are going to buy, look at the PRICE but also look at the VALUE. Ask yourself:
- “Is this thing WORTH what they are asking for it?”
- “Can I buy it cheaper elsewhere” and
- “Would I rather spend that money on something else”.
You would not believe how much money I HAVEN’T spent by asking those questions. Except on coffee which in any universe is worth any amount of money charged as far as I’m concerned especially when a friend and a natter is involved.
How do I control myself???
Well, when we were in debt I woke up and realised just how much the banks were making out of me. And how ill I was getting because I was so worried about how I we were going to pay the bills. Now I don’t remember the last time I couldn’t sleep because I was worried about how to pay a bill. THAT is what keeps me going, and stops me buying stuff I really don’t need, gets the library books back on time and makes me do crazy things like “budget days”. After a while I even got to enjoy it!
Just had another thought about this. I got my Moneysaving expert email today and it’s talking about debt. I know I’ve just mentioned credit cards on here but I just need to say that if you are struggling to cope with money, DONT get a credit card. I use one ONLY because it saves me money to do so, I get cashback rewards and it costs me nothing to do so. I ALWAYS pay off the full balance every month, so I pay NO INTEREST. (This makes my Mortgage cheaper because I have a revolving credit mortgage)
If you cannot do that, using a credit card can be VERY bad for your finances. Interest charges are too high and if you can’t pay the full balance, your debt spirals out of control way too easily.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Avalon’s Money Thread – should I pay off my home loan as fast as possible?
I have always thought that paying your mortgage off as quickly as possible is a ‘given’. Not according to these guy’s. That did worry us.
I actually heard a rather good explanation of this from the ASB advisor. I had always thought that getting the mortgage off your back was to be our first priority, and for many people it may still be the best option so I wouldn’t discount it out of hand. That really depends as far as I can see on your personal circumstances, finances, and how good you are with money. I fully believed in this principle when I came here purely from reading the Anita Bell books. I had never really appreciated just how much money you actually pay for a house when you take into account the interest payments over 25years.
Our house cost $595k to buy. But over 20 years taking a 265K mortgage will add 269K to the cost so it will actually have cost us $864k to buy! Interestingly – if you are me anyway – by paying fortnightly for the whole 20 years we save a whopping $53,000 on the cost of our house- that’s a whole lotta coffee!
15142 cups to be precise
However where the advisors are coming from is that if you pay off your mortgage and only do that, you still have no savings with which to live on, so you still have to work to earn an income. Whereas if you were to save / invest at the same time as overpaying a bit on your mortgage you get rid of the debt earlier (and save money on interest charges) but you also have money set aside that you can now live on (or investments that generate an income). That’s the idea anyway!
Hi, everyone, pardon me if I’m asking a silly question but from reading the forum, I have this feeling that most people take up mortgage loan of about $200K to purchase a house, even though they may have the spare cash. Can anyone enlighten me on the reason for such arrangement?
Well, I can’t exactly answer that as for a start if I had $200k in cash hanging around – I would have used it to buy the house instead of taking a mortgage. However – there are 2 theories that could explain at least why some people would do it.
Firstly – revolving credit mortgages are popular here. We have one of these, and part of our mortgage is on this scheme. (About $100k) Now we didn’t actually need the whole 100k, as we have some extra savings, so at the moment only about 60k of that is being used. A revolving credit facility is like a big (huge) overdraft limit. So in our case we have an overdraft limit of 100k, but the balance is only about 60k overdrawn. There are 2 reasons that we have done this:
(1) we don’t pay interest on the portion of the “mortgage” that we don’t use, we only pay it on the 60k,
(2) If we need that money in a hurry we don’t have to ask the bank for a new loan, it’s already “approved” and that money is available at mortgage rates (though please see post on revolving mortgages for why you need to be very careful of doing this).
The other thing that we do that goes against the “get rid of the mortgage fast” is that we are saving to invest alongside paying extra on the mortgage. This money will be used to buy shares to start with and this was a really big thing to get my head round. It’s all very well having no mortgage but do you have any money to live on as well. My parents are a good example of this. They have used $200k to buy a stake in our house. With our money, and our mortgage plus their 200k, we bought 1 big house. They have the money to get rid of at least a huge chunk of our mortgage but they would have nothing to live on (as they have very little income).
Something else I did remember if you are buying now, the exchange rate is very poor (2.5 @ time of writing*), and in some cases it may actually be better to leave some money in the UK, pay an NZ mortgage and then bring the cash over when the rate improves. I can’t remember the numbers, but we worked out that if the exchange rate £-$ went up to 2.85, it would be worth us leaving money in the UK for up to 2 years.
* Oh for the days of an exchance rate of 2.5! Its 2.2 today – and thats up a bit.
Avalon’s Money Thread is a series of posts which were originally written in 2007 for an Immigration Forum. They came about by answering questions that forum members asked, about how to cope with the often difficult financial situation they face in New Zealand. They formed the basis of what was eventually to become the book Avalon’s Guide: after another year or so of drinking way too much coffee and finding out way more about taxes, money and investing that any sane person should.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Avalon’s Money Thread: Can I get a decent affordable mortgage?
Filed under: Avalon's Money Thread, Interest Rates, Credit Cards & Mortgages in NZ
I’m a sick puppy; I think mortgages are really interesting once you understand how they work! The Anita Bell Mortgage book is really the best thing there is for explaining it all (Other than my book of course) and reading that will put you streets ahead when you have to go asking banks for shed loads of money to buy your own piece of beachfront New Zealand.
Firstly it’s always worth negotiating with the banks over your mortgage. The more you need to borrow the more clout you have, so don’t be shy. The worst that can happen is they say no and they may well say yes!
I got 0.5% off my variable rate on the Revolving Credit mortgage (that’s the ASB orbit account) and I also negotiated a refund on the monthly fee of $10 but forgot to negotiate a refund on ALL fees, so I do still have to pay $2.00 a time to set up automatic or bill payments I’m currently paying 9.05% instead of 9.55%, that’s on a mortgage of $100k. This is variable so goes up and down as the bank rate changes, but I stay 0.5% below the advertised ASB rate at all times.
I got 0.25% of the 2 year fixed rate so I’m paying 7.42% instead of 7.67% that’s on $165K.
Note: Current rates are 6.4% on the variable rate and 5.42% on the fixed rate mortgage. As discussed before here, we have also reduced the level of the mortgage by over $120,000 by using the tricks we learned.
I also got an agreement to refund all fees payable on my parents and brothers NZ accounts, up to $20 a month on each account.
AND – I got my first year Credit card fees removed, as well as the fee for joining the Credit card reward program. All in all, over the first two years, it is saving quite a packet.
A lot of what reductions you can get depends on the numbers – $265k mortgage is quite high. But my top tip, even if you aren’t looking at anywhere near that much is: shop around and TALK to the mortgage managers. I had 6-7 meetings with the guy at ASB; asking loads of questions about how things work in NZ. I also knew what I wanted to do to save money because I have read Anita Bells books on the subject a few times I built up quite a relationship with the guy before we ever signed on the line!
If anyone is patronising, or doesn’t give you the time of day, walk and go to the next bank or even another branch of the same bank. With ANZ I never got further than a first meeting with for this reason, that and they will give a measly 0.1% discount on the rate and charge you for it! Westpac nearly got my banking business, except when I was passed on to the “personal Relationship manager” and he was utterly obnoxious! Patronising and arrogant and he spoke to me as if I was 12 years old with a piggy bank! Bear in mind at this point I was well on the way to getting my finances sorted, had budgeted till I was blue in the face and could tell exactly what I had in the bank to the cent. I was not a happy bunny.
One thing I would suggest is ask every bank for quotes, and ask then them all to negotiate. I rapidly took two banks off my list because they wouldn’t move on rates (ANZ and HSBC). You will rapidly get to know what the deal is and get a feel for the best way to structure the mortgage.
The main options for mortgages are:
Fixed Rate Mortgages (fixed for 6 months up to 5 years – some now for up to 10 years)
Flexible rate Mortgages (your bog-standard old fashioned normal type mortgage)
Revolving credit accounts. (See below)
Be aware that you can split your mortgage into chunks, fixing some for different lengths of time, having some on a normal flexible mortgage, or some on a “Revolving Credit” (See next note). This is something I found really bizarre, because we just don’t have this in the UK. But to be honest I really like it. I just split mine into 2, but I’m due to look at it again in July07 and I’m thinking of doing a three way split: some on Revolving, a 1yr fixed rate, and a 2 yr fixed rate. It means you have a bit more flexibility to work with interest rate changes, and by splitting the mortgage up you can pay off your mortgage faster by making the overall interest rate lower.
QUOTE: Paying fortnightly instead of monthly is a very smart way to reduce mortgage costs.
Too right! We don’t do this because of the way we have ours set up it actually doesn’t give us an advantage. With a revolving mortgage often at a higher interest rate, you need to keep all your pennies in that account as long as possible. If you don’t have one of them, fortnightly is better.
If you use the “fine tune your loan” calculator on Westpac It will show you exactly how much money you can save between a monthly mortgage and splitting the amount in half and paying that fortnightly. Plug in the numbers for a monthly mortgage and hit calculate. That tells you the monthly payments and how much interest you pay overall. Under “Change payment frequency” – click option [a] (half monthly amount paid fortnightly) and hit recalculate. It then tells in nice friendly red letters just how much you save overall and how much time you just knocked off your mortgage. If that doesn’t make Mortgages interesting – nothing will.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Kiwis don’t know much about Finance. Who would have thought?
Filed under: Economics, General Budgeting, Property & General Investing, Retirement, Pensions and Kiwisaver
Today is apparently the start of Financial Awareness week. Being made aware of it before it happened might have been an idea – but better late than never. And shock, horror – there’s an article in the Dom Post today about how little Kiwi school children know about financial stuff.
A questionnaire commissioned by the Young Enterprise Trust and tackled by hundreds of secondary school students has provided a damning indictment of financial knowledge levels among New Zealand’s future workers.
Despite the survey being packed with basic themes like compound interest, income tax and GST, returned forms were littered with an alarming number of mistakes only half managed to register eight correct answers out of 40 questions.
Errm – did we need a survey to tell us this? How exactly were they supposed to know the answers about income tax and GST? Who the hell cares when they are at school? It’s just not relevant. Ok, Compound interest is – because it shows you that saving is good and debt is bad, and besides – it should be in the Maths curriculum anyway.
But knowing GST rates isn’t something a school kid really needs to understand. Learning how to handle money: save a bit, spend a bit and keep on eye on your finances – that’s what they need to learn.
It’s a bit worrying that only half managed to get 20% right. Statistically – if you guess at the answers (multi-choice out of 4 choices) everyone should have got 25% correct.
The questions that registered the highest number of incorrect answers centred on credit card interest, the types of investment that return the highest growth over time, and dollar cost averaging.
Now, credit card interest – yep – lets sit down and make sure every student leaves school knowing exactly how bad credit cards can be, and how they are seen as easy prey by the credit card companies once they leave school. This is in my opinion vitally important for them to grasp. And an understanding of investment returns is not a bad idea. I didn’t know what Dollar Cost Averaging was until about 4 years ago when I went to an investment seminar here in New Zealand. I had made use of it in the form of investing in an Endowment fund in the UK, but hadn’t got the foggiest idea that this is what I was doing – or why it was a good thing.
The article is actually rather good, and makes some good points about how we really need to start financial learning at school age. Unfortunately it finishes with whacking adult Kiwis over the head for insisting on investing in Property (which as you know is not actually the case at all). They seem to think we do it because we are too stupid to invest in shares, rather than because we are actually semi-intelligent and weighed up the risks and the benefits and worked out which was better for us. I know that’s what I did. But only after I had the basics sorted. Theres no point in learning about investing if every month you continue to spend more than you earn. Let’s teach people this first.
Like what Avalon has to say?
Click Here to buy Avalon's Guide or Click Here to buy the E-Book
Buy Avalon’s Guide
-
