KiwiSaver can affect property loans

Mike Pero Mortgages is advising people with existing home loans to talk to a mortgage broker about KiwiSaver before committing to join the scheme.

Wednesday, July 11th 2007, 11:56AM

by The Landlord

CEO Jeff Staniland says, “The effect of KiwiSaver contributions will be to lower the amount that can be committed to home loan repayments”.

“People may not have thought about the effect their KiwiSaver contributions could have on their home loan. A contribution of 4% may not seem like much but it is $167 a month for someone on $50,000 a year and for someone who elects the 8% rate it is more than $300 a month”.

“That could have an effect on a home loan application or refinancing application if someone’s finances are reasonably tight, particularly in the current high interest rate environment.”

The company has been talking to various lenders about how they will treat KiwiSaver contributions in relation to home loan applications. Some lenders look at gross income, and say they will probably treat KiwiSaver contributions as an expense, while others look at net income after the KiwiSaver contribution.

Staniland says, “for people looking to refinance existing loans, KiwiSaver could have an effect on how they are treated. We are advising people to come and talk to a mortgage broker well before they need to refinance”.

“A lot of people will need to refinance their home loans over the coming months as they come off fixed-term rates, and may be facing a significant hike in interest rates.” For someone with a $200,000 mortgage fixed at 7% (say two years ago) for a 15-year term and seeking to re-fix for another two years at 9.25%, monthly payments would go from $1764 to $2026; an increase of $262 a month.

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