Bank Guarantees on loans
When you take out a mortgage to buy your home, the mortgage is “secured” against the house. Most people get that, and understand it – it’s the bit that says “You can lose your home if you do not keep up the repayments on your loan” sort of thing.
But on top of that – you also get what is called a Personal Guarantee. Which says that even if we take your home, and you find some nifty way to try and get round paying us what you owe us, you personally guarantee that you will pay us what we want – even if its 20 times what your house was worth. Or something to that effect. Strangely enough its a nightmare of small-print and legal waffle.
And it’s the bit we seem to have no end of problems with in our dealings with ASB. I dread trying to organise mortgages with them now, because I can almost “guarantee” that there is gonna be a problem with the Guarantees.
We have yet another problem with them right because Ive actually paid off one of my mortgages.
Which is obviously a bit of a big thing for me. (Blog will be here as soon as I have the statement to copy and prove it!) It seems the ASB loan department have finally looked through the file, and worked out that one of the trustees in our Family Trust changed about 3 years ago. They were told, but it looks like everyone ignored it. Now they want us to sign another guarantee to replace that one.
For a loan that we have paid off.
Bloodsuckers!
So, as I am already a bit disgruntled with the loans people for screwing us around a few weeks ago, Ive said I wouldn’t do it unless they covered the legal costs – as Lawyers are needed (they are the trustees that changed). ASB have agreed to pay $250.00, so I’m instructing the solicitors that if it takes more than that, they need to stop working on it and tell me. I’m not paying for another bank stuff-up. They wont reduce my bank fees, so I’m not in the mood to indulge them right now.
I’ve also said that I need it in writing that the old guarantee is canceled, and that they are only wanting us to guarantee the amount of the outstanding loan – a rather large $210,000.00 less than the original guarantee.
Banks will try and sneak in a silly amount, but you can tell them to make the guarantee for the size of the loan only – it will have a clause in there that they can come after you for any associated costs and interest anyway.
I wait with baited breath to see what they will do.
One of the things to note about this situation, is that you may be advised to set up a family trust when you come to New Zealand. Usually on the premise that it protects your assets such as your home. But then the bank makes you sign these guarantees, and they bypass the whole family trust anyway. SO don’t be fooled. We are happy to have a family trust, because we have a business and investments, and it will to some extent protect the home my parents and brother live in if we stuff up. But every business loan we have has one attached, so if you go belly-up, the banks can come after us – there no hiding.
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Avalon’s Money Thread: Working out our net worth.
Filed under: Avalon's Money Thread, Banks, Economics, General Budgeting, Investing in general, Mortgages in New Zealand, Property Investing
We’ve done the budget, we’ve made some decisions, our personal Fixed Rate mortgage comes up for renewal in January, and we have decided to rejig the way we pay our mortgages.
All that was left to do was to track what our Net Worth was – which given the economy was a highly daunting task to be honest.
Your Net Worth is basically the value of what you own (assets) minus the value of you owe (debts). Unlike a Budget, which tells you what you are going to do over a month or year – your Net Worth tells you how much you have right now. Today.
It’s not difficult (especially if you have your accounts in order and your paperwork filed)– just a bit depressing at the moment. Because I like spreadsheets, and I’m lazy, I just copy the same spreadsheet from last year and fill in the numbers – its quite straightforward. In fact the only difficult bit to be honest is grabbing the bits of paper that contain the info you need.
On one side I have a list of all the assets: property, banks accounts, savings accounts, shares, pensions, car, and household goods (Insurance value is the best way to determine that).
On the other side are the mortgages, credit cards and any loans.
Take one from the other, and what is left is how much you are worth today.
In our case – about $250,000 less that we were 2 years ago.
I kid you not.
So why am I not crying into my coffee right now?
Well, Net Worth is a really good indicator of how you are doing financially. But it has to be taken in context. Most of that “wealth” is paper money. It doesn’t really exist. I don’t have $250,000 less dollar coins than I had – it’s just that my properties have gone down in value. In time – the value will go up again, and so will my “wealth”.
It becomes an issue if you want to borrow money and maximise how much money the banks will lend you – as they want to know the value of your assets. When I spoke to the valuer to get ours revalued – he said that he’s never been busier with banks insisting on clients getting up to date values on all their properties. While this can be annoying – I have to say I think I’m actually with the banks on this one.
I spoke to ANZ the other day about the possibility of refinancing a rental (the funds to be used to reduce personal mortgage – so no extra lending overall). They won’t lend more than 70% of the value of a rental, and my mortgage was for 75% already. The thing is, while doing this is defiantly for the banks good – it also prevents us as buyers from over extending. I think we personally got lucky that the recession hit so fast just after we bought our 3 rentals and couldn’t buy any more. It prevented us going mad, getting caught up in a storm and going belly-up which has happened to an awful lot of people.
We have “protected” as much as we can of our net worth by paying down as much debt as we can as fast as we can. So while our assets are worth much less, so are our debts. There is actually a lot you can learn from a recession, and if you can get through this and come out the other side – then just think what you will be like when the economic climate improves.
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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.
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Argghhh – why all these “extra” charges???
My perennial favourite of course being the patently ridiculous “Automatic Payment Loading Fee” the bank charges me to do their job for them and set up a standing order – but just this week I have seen three almost as ridiculous examples of spurious rip offs.
First goes to Ticketec. Now they always add silly charges – mostly for posting your tickets to you. Extra if you live in the countryside of course. And they will charge you if you don’t want them to send it to you – you want to pick them up instead. But now they have gone one further and will charge you $5 if you want to print your ticket at home, on your own printer, using your own ink, and your own paper.
Second goes to Reading Cinema who again charges you $2 for the “privilege” of ordering your ticket over the internet and saving the staff 2 minutes work.
But taking the biscuit completely for a wacky and completely pointless charge goes to Aotea Pathology. I needed to go have a blood test on Saturday morning – which meant I had to get up at 7am (and on a Saturday dammit) and go into Welly because the local clinics don’t do tests on Saturday (sensible people).
So I go in, give my name, pay the bill and am asked to sit down and wait. It wasn’t until I came out of the labs that I happened to look at the bill. Alongside the two charges for the tests themselves is a third charge.
Encounter Fee – $12.57
WHAT?????
This it seems is the charge for the lady at reception to take my name and charge me the fee and ask me to sit down.
The mind boggles.
Bloody rip off merchants.
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Watch those Direct Debits in New Zealand.
I need to cancel a Direct Debit. No problem you would think? Hmmm, not so fast – this is the New Zealand Banking system, and so of course it just ain’t that simple.
In Avalon’s Guide, one of things I stress is:
And something which is vitally important: once you have closed down all your utilities in the UK, like gas, electricity, internet, and you have told them not to take any more money from you via Direct Debits – also tell your bank! You should always cancel your Direct Debits with the bank, and then if any company “forgets” that they shouldn’t be charging you anymore, they can’t get your money.
So I figured (I think rather sensibly) that I would do the same thing here. Cancel the Direct Debit at the bank just in case the company I’m dealing with (which so far has shown itself to be run by a bunch of bone idle morons) “forget” and try and take another premium.
But the bank wont do it.
Apparently, the only way to cancel the DD at the bank is to cancel my Credit Card and get a new one.
What???? 
Are these people for real?
This is despite a clause on the DD form that says:
2. The Customer may:
(a) At any time, terminate this Authority as to future payments
by giving written notice of termination to the Bank and to
the Initiator.
(b) Stop payment of any Direct Debit to be initiated under this
Authority by the Initiator by giving written notice to the
Bank prior to the Direct Debit being paid by the Bank.
Apparently, I cant.
So I contacted Direct Debit New Zealand, who were also as effective as a wet paper bag. Although they have said:
At directdebit.co.nz we are looking to increase the visibility of these
processes to ensure the “customer” controls the direct debit process more.
Which is nice.
So be warned. Here in New Zealand the Direct Debit system, which is supposed to offer us all sorts of protection, doesn’t.
The banks are ignoring their duty under the agreements we signed.
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KiwiBank Analysts – need to switch thier brains on.
Kiwibank asked their “analyst” to look again at our application for a Credit Card. Which if you think about it is a bit silly as he is hardly going to be admitting to be an idiot.
But the same analyst has said no – because yes – he is still an idiot – and can’t grasp that there’s actually a lot more at stake than a bloody credit card.
The thing which makes me want to scream with frustration is that its actually people like this who caused the collapse of the banking system and the recession in the first place – because they insist that money behaves in a vacuum.
You see money is just a number.
- X amount of debt is too much
- Y amount of debt isn’t enough.
Analysts and Economists tend to forget that it’s Human Beings who spend money, or don’t spend it, and do it in the main for emotional reasons. Analysts don’t tend to look at any other factor. This guy is only interested in the amount of debt. He doesn’t give a toss about excess income, savings, assets, or amount of debt paid off. He looks at one number in isolation and decides whether you are worthy or not.
They also tend to forget that when you piss us off – we can have very long memories, and bad customer service now will be remembered for a very long time.
Its also hugely frustrating that while we obviously can afford a credit card, never having missed a payment in our lives – we can’t get a new one, and yet people who have no hope of being able to pay off the balances will get offered them by the bucket load. And if anyone thinks that’s not the real reason we have been turned down – you could be dreaming.
The fact is people like us don’t actually make money for the banks on our credit cards, because we don’t pay interest. Credit cards only work for the banks if you don’t pay them off. The damage that has been done across the western world by banks insisting on giving credit cards (and mortgages) to people who cannot pay off the balance is staggering.
It should be said that I have been dealing with a very patient and understanding man at Kiwibank (the Analyst wont “front up” to a mere “customer”). It’s a pity that the humans aren’t in charge.
So, thats BNZ and Kiwibank who will never see a cent of our money.
The list of banks who haven’t right royally hacked us off yet is getting smaller. 
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Avalon’s Money Thread: Revolving Credit Mortgages.
These are sometimes called Line Of Credit (LOC) mortgages, and are very common here. They are most like the One Account in the UK, in that it’s a mortgage and current account rolled into one. Basically it’s a current account with a whopping great overdraft. The benefit is that if you get paid your salary directly into it, it can reduce the amount of interest you pay on the loan.
However there are some serious downsides especially if you are not too good at looking after your money. They are notorious for not getting paid off, as it’s all too easy to keep dipping into for buying cars, boats, shoes or coffee.
Also, because they are usually a few % more than fixed rate mortgages – you need to have a certain amount in there at all times to offset the higher interest rate. There’s actually a calculation you can do to work out how much of a balance you need to keep in.
I would say if you are thinking of a revolving credit account you do need to be very good with organizing your money, as it’s all too easy to end up with the OD limit never going down. So you never pay off that part of the mortgage. Some banks have these types of accounts where they do drop the limit each month so if you wanted one, but feel concerned look for that. Otherwise the way I deal with is:
I use Quicken to run my accounts at home. Doesn’t really matter how you do it but have some way of keeping track of your mortgage (don’t rely on the bank to tell you). In Quicken I have set up a “savings goal” and each month I move money into it. This is always the amount of money I “should” have paid on the mortgage if it was a normal one, minus the interest for that month. So for example: I should pay a total on $902 a month for a $100k mortgage at 9.05%. My interest for the month is around $300, so I pay $602 into the savings pot. When I have $5000 in there, I “move it back out” and ask the bank to reduce the overdraft limit by $5000. I have then paid off 5k. I know this may sound weird because the savings pot only exists in Quicken or on a spreadsheet, but it works.
You also really need a credit card. By putting as much on the credit card as possible, you keep the balance in the revolving credit account as high as possible for as long as possible. But always make sure you know exactly how much you can spend on the credit card without getting into trouble. For this to work well, and not get into debt you need to be able to pay off the CC each month in full. If you don’t think you can do that then it may not be a good idea to have this kind of mortgage. Do not use the CC for buying consumer items that you do not have the money for. That way lays ever-increasing mortgage debt. Maybe just have a very small limit on the credit card. You need the equivalent of 2 months spending as a minimum limit.
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.
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It’s a budget day today.
Filed under: Banks, Cost of living, Mortgages in New Zealand
I don’t think it’s a huge secret that we have splurged a bit this year –after being very careful with our budgets and spending for several years. There has been some work on the house to do, spoiling ourselves outrageously with a new TV and sound system, and spending a small fortune on coffee, eating out and hotel stays in an effort to deal with the stress of handling jerks at Immigration.
We have managed to do it by taking a Mortgage Holiday – basically we are so far ahead on our mortgage payments that we decided to take a break and relax for a while.
But that has to end, and we now have to get back to the serious job of telling the banks to get stuffed. So we need a budget day – to get back on track and see where we are and what we need to do.
It can be very scary having days like this – especially if you have the feeling of impending doom that goes with knowing you have spent way more than you have earned – but it’s got to be done.
So we started out by looking at what we actually spent over the last year. It’s a quick enough job for us, as we can print the information off our accounts and then just add it into our spreadsheet. You can download a copy of that from here if you want to.
(Note: sorted.org.nz has a budget sheet you can fill in, but a friend of mine used it lately and it actually wasn’t that impressive. A good alternative to mine is available on Moneysaving expert).
Honestly – it wasn’t actually that bad. Almost all of the overspend was on the “Splurge”. When we take that into account – even though I have not been as careful with money this year as usual – we were still not far off target.
Our biggest issue for the next year is that like a lot people, our fixed bills are going up, and yet our income is not. We have had to take out some extra insurances, IBM are now too bloody tight-fisted to pay for home internet for their staff, electricity – well – when did that last go down in price – and our Doctors bills went through the roof thanks to the jerks at INZ.
Oddly enough – and to my utter shock – our transport costs came down by about $400! That’s mostly because petrol has come down, and Hubby works at home as much as he can (and IBM have not yet made that against company policy).
Once we saw how bad (or not) it was – we then made some decisions about what we feel we should or could cut back on. As usual – we have checked our electricity and phone supplies, and we are not changing them right now.
We have also set a date to do a review in 2 months time to check on things. We wouldn’t normally have to do it so soon, but this is because we have been lax this year – and need to get to grips with things. For us, this is also the first time since we came to New Zealand that we will have the same spending requirements over the whole of the next 12 months. In the past, when the family have been here – they share the bills, but when we are on our own – we pay for it all. From here on in, the bills should be the same all the time, and that will actually make it easier for both us and my parents to keep on track.
Anyway – we are done – and I’m off for a coffee.
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Avalon’s Money Thread: Can I get a decent affordable mortgage?
Filed under: Avalon's Money Thread, Mortgages in New Zealand
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.
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Avalon’s Money Thread: Banks and Bank Charges.
I have to make clear at the outset that I do not accept that bank charges are fair at all. I know all the reasons: how can I possibly expect the bank to work for free; they aren’t a charity etc, but banks make enough money out of us as it is and they don’t need to make any more. You don’t pay Whitcoulls $5 a month for the privilege of being able to go in and buy a book – so why should you pay the banks to hold on to your money. They make money by investing your savings, or charging you higher rates of interest than they pay, when they lend you money.
I utterly object to being charged to spend my money. I don’t care what they charge or why they do it, it’s not their money, its mine! It’s a principle thing and at the end of the day no amount of justification for charges actually diminishes my principles.
Bank fees in New Zealand are ludicrous and applied for the most spurious of reasons. ASB will charge you for having to ask their permission to spend your money! (The netcode release fee is a charge applied if you wish to spend over $500 over the Internet. This is for “security”. (Theirs not ours by the way – and yes – having a hubby who works in IT Security – I do indeed get the inside track on just how much we are being expolited by the banks on this issue). Apparently the banks got stung by fraud and so introduced net code. OK we all need security but I have never had to ask permission to spend my money, not even when I was 5. As it’s for their benefit though, why do I have to pay? The online spending limit used to be $2500, but due to a phishing attack I now cannot spend over $500 via the Internet without permission.
As others have said, you can get round this. Everything in the New Zealand banking system seems to be negotiable, especially once you have a mortgage or an account with $50k in. There’s nothing to stop you asking your current bank to match the best offer you can get elsewhere, we did this with our mortgage.
Note: Nogotiating with the banks is a lot tougher right at the moment, but as with everything – once the “resession” is over – the banks will come round and be more ameniable.
You can wangle your way round fees, especially service fees such as getting bank cheques and moving large sums of money for bills etc if you get a good “Personal Relationship Manager”. If you cannot do this, careful use of the system can minimise fees even if you can’t stop them.
Firstly be aware that getting small amounts of cash from an ATM is EXPENSIVE. You can get charged upto 50c each time. So when you get cash, get amounts that make it worth it. It always cheaper to get cash back at the supermarket paying usually only 20c. Never get cash from another bank ATM on top of the 50c charge, you get another 50c charge and it really adds up. (Do that 7 times – that’s a cappuccino ) Decide how you handle cash, its different for everyone, but we now use cash much more than we did in the UK, where we thought nothing of using switch (eftpos) for sums as small as £5, now we have a minimum we allow of $25.
(Currently becuase we have a Mortgage account – we dont actually get charged anything for taking cash out – it’s included in our monthly “base fee” which is now non-negotiable!)
It is worth being aware that fee free banking is finally coming to NZ. It’s been here a while with the proviso that you keep minimum balances, often $3k-5k. Now some of the banks are offering no transaction fees on their current accounts. In some cases you can get no monthly base fee by opting out of being sent paper statements. I’m not so keen on that idea, but that’s because for me the statement arriving tells me its time to balance my accounts. You have always been able to negotiate your fees here, but it has tended to rely on having a lot of business with the bank (savings or mortgage or business accounts), but this change means the fee free banking is open to more people not just those of us with a fair amount of money tied up with the bank.
Current ASB charges:
Streamline account:
$3 a month base fee (waived if you have “Statement Stopper”)
$1 a month for a netcode token
25c each day you use Netcode
$2 to set up an automatic payment or bill payee.
Fastcheque is now free.
Their credit cards cost from $12 – $40 each every 6 months, and their credit card reward program costs $10 each for 6 months. Why they shoudl charge you to join the rewards program is beyond me – anything for a fast buck I guess!
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.
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