Working with a mortgage broker in New Zealand

Mortgages can be complicated - especially for first-home buyers in New Zealand. That’s why more than half of borrowers now use a mortgage adviser to navigate the home loan process.

Brokers are usually free to the borrower (they’re paid by the lender) and can help with decisions like:

• How to split your loan between fixed and floating rates
• Which lender is right for you
• How changes to the Official Cash Rate (OCR) could impact your repayments

A mortgage broker in NZ acts as a go-between, dealing with banks and other lenders on your behalf. According to Cotality, around 60% of mortgages in New Zealand are arranged by brokers.

• They usually earn a commission from the lender (a percentage of the loan amount).
• Some may also charge you a fee, so always ask upfront.
• A good adviser will present you with multiple loan options and explain why they recommend a particular one.
• Tip: It’s often best to choose a broker recommended by someone you trust (a friend, family member, or real estate agent).

The Financial Markets Authority (FMA) suggests asking these questions at the outset:

• Do you offer loans from a range of lenders?
• How do you get paid, and does it differ between lenders?
• Why are you recommending this loan to me?
• Can you show me a couple more options, including the cheapest?

One of the key ways a mortgage adviser helps is by securing home loan pre-approval. They’ll review your bank accounts, spending, savings, debts, and assets, then provide the information a lender needs.

Not all banks in New Zealand work with mortgage brokers, so it’s worth checking who your adviser partners with.

Pre-approval (sometimes called a Letter of Offer of Finance) sets the maximum amount a lender is willing to lend you. Conditions usually apply, such as:

• A registered valuation of the property
• A signed sale and purchase agreement the lender approves

Jarrod: No paperwork, but you should have a good handle on your personal finances including a budget. Payslips would help if you don’t have a clear idea of how much you earn. The first meeting though is a “getting to know you and what’s important meeting.”

Jarrod: When you’re pre-approved and you come across a potential house you want to put an offer on, it’s good practice to email the property listing to your mortgage adviser to check for suitability. Your pre-approval is general and may rule out certain properties like plaster homes, rural properties or new builds. A good adviser will be able to provide property-specific feedback once they’re viewed the listing.

Jarrod: Now it’s time to engage a lawyer to help you draw up your offer. Most good advisers will be aware of the conditions to include but it’s vital a lawyer helps at this stage as the contract is legal in nature.

Jarrod: Most people, without guidance, will fix their mortgage for one term and will often do so based on the cheapest rate at the time without any thought as to what may happen at the end of the fixed term. I’ve always split mortgages over several terms to spread the interest rate risk with a floating component (offset or revolving credit). This allows the client to make lump sum payments without paying a penalty and to offset interest with funds that may be sitting idle in their transactional and savings accounts.

Jarrod: This depends on how much you’re borrowing and the interest rates being used but, as an example, a $500,000 mortgage at 6.5% over 30 years will cost you $1,137,186. The same mortgage over 20 years will cost you $894,054.

Jarrod: Mortgage rates don’t always go up with an OCR rise. Banks are regularly forecasting what the OCR is going to do so you might find that in some instances, the OCR rise has already been factored into the rates. And, sometimes, the banks won’t pass on the full cost of the OCR rise either as we’ve experienced this year.