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To fix or not to fix

It is tempting to leave all borrowings on floating, waiting for the “low point”. However, that point may be very hard to pick with so many variables. Our rates are also dependent on overseas events and no one, including the economists can accurately predict the events that could happen. Rather than try and predict the bottom of the fixed interest cycle, it would be safer to fix some and float some. It is possible to split your mortgage into several fixed rate terms so that not all the borrowings come off fixed at the same time. Perhaps floating half or a third and fixing the rest. The advertised fixed rates are just an indication at the moment since we are currently negotiating discounts. However, the discounting that is  happening at the moment, won’t last forever. Banks are competing to gain new customers or retain them but as rates firm up the discounting will stop. When that happens no one knows but we are in an unusual situation. There is the option to fix for 1 or 2 years, which are really good rates.However, at the end of that fixed term, the question to ask is what the rates might be at that time. It may be a better option to fix some for a longer term to hedge your bets. No one is expecting an interest rate spike but then again, no one expected the rates to stay this low for this length of time. Historically 7.4% is a great rate and at this time even the 5 year rates are less than that. I am not suggesting fixing everything for...

Seven Money Mistakes to Avoid

We all make financial mistakes and they add up Academic research tells us that emotions and experiences can distort our financial decisions. While our mistakes are rarely the result of a single mental error, our feelings can make us fumble. Below, seven big financial mistakes and the psychology behind them. 1. Saving with the right hand and spending with the left Diagnosis: Mental accounting Symptoms; Keeping money in a savings account while paying credit card debt at 19%, thinking a tax refund is a reason to spend; obsessing over the price of a new car but not monitoring the weekly grocery spend. Solution; Look at the whole financial picture, not just the part that you want to see..read more here   2. Playing it too safe Diagnosis: Loss Aversion Symptoms;  Quick to sell winning stocks but slow to sell losing ones; putting too much cash in money-market funds and not enough in stocks; reluctance to trade away what you already have, even for something more valuable Solution; No one likes losing money — a truism that economists call “loss aversion.” Because we can avoid only losses that we recognize, we tend to focus on immediate costs, while ignoring more subtle costs and even savings. e.g. we should recognize that getting a $4 discount is worth as much as avoiding a $4 surcharge. But most of us would rather avoid that surcharge   3. Looking into a Cloudy Crystal Ball Diagnosis; Misunderstanding Risk Symptoms; Putting too much money into your favourite investment, not diversifying, not putting in place risk protection such as your personal health as well as assets Solution; Take out appropriate insurance. The majority of people...

Are you paying too much for your mortgage?

Are you paying too much for your mortgage? Floating rates at 5.25% are on offer for most borrowers (subject to bank approval of course) but if you don’t ask then you’ll carry on paying the rate you are on, the banks aren’t about to offer a cheaper rate unless you ask for it. What difference does it make? On a loan of $285,000 currently paying 5.75% it means a saving of $1425 pa or $118.75 per month. Generally if this means a 0.5% discount on your current rate then most banks will maintain this discount for a minimum of 1 year as / if the rate changes. There are some very good discounts on the fixed rates as well, it might be worth considering fixing a portion of your loan for the longer term. The short term rates are definitely more attractive but someone said to me once “if the rates are high then fix short but if they are low then fix long” This makes sense to me since we don’t know what the rates will be in (say) 2 or 3 years and any short term savings may well be gobbled up if the rates are higher. There is of course a great debate going on whether to keep floating or to fix so that decision is up to the individual risk profile. A very good recording done by Bernard Hickey is here. It’s 8 minutes long but a very good balanced point of view on this debate. click for recording here Are you paying too much for your...

Investors can still claim depreciation

The following information was supplied by Valuit, Specialists in property valuation Depreciation – now every reason to claim and no reason not to! Over recent years a couple of things have held many investors back from claiming their full depreciation entitlement, and accountants from recommending it. Uncertainty over what IRD would allow to be separated from the building such as electrical wiring and plumbing AND The thought of having to repay a majority of the depreciation through depreciation recovery when selling. BUT these two hurdles have been removed leaving very little downside to claiming your full depreciation entitlement. Recent Changes summarised Budget – May 2010 As was widely forecast the Government removed the ability for property investors to claim building depreciation in the Budget, commencing April 1 2011, whilst still allowing the depreciation on Chattels and Fit-out. The big benefit is that it removes the risk of being hit with a big depreciation recovery bill when you sell the property. In the past this has seen many investors claim little or no depreciation, but no longer. The chattels and fit-out can in most cases be proven to reduce in value and therefore recovery on these items will be removed or significantly reduced. Interpretation Statement – April 2010 IRD released its Final Interpretation Statement on the “Tax treatment of Residential Rental property for Depreciation purposes”, finally clearing the confusion surrounding what IRD considers to be part of the building for depreciation purposes. While items such as plumbing, partitioning and electrical reticulation are considered part of the building, investors will be able to claim many “fit-out” items that are allowable, such as fences,...

Assistance for Canterbury region Sovereign clients

Message from Sovereign to HomelinkFinance We can help Sovereign Home Loan clients with the following: An additional loan of up to $10,000 for 90 days at the special floating rate of 1.25% p.a. below Sovereign’s floating rate i.e. 5.10% p.a as of today. This loan will be advanced prior to documentation being signed. Funds will be available in the new account immediately and can be accessed in the normal manner. Sovereign will let clients know as soon as funds are available. The loan agreements will be sent to clients for signing and returning to Sovereign within 28 days of advance. At the end of the 90 days, clients can repay the loan or add this to their existing facility. Please note that LMI is not required for these loans. Mortgage Repayment Holiday: suspend home loan payments for up to three months (interest will still be added to the loan). Interest Only for a period of up to six months. No Early Repayment Fees when repaying a fixed rate home loan, where a home is destroyed or suffered major damage as a result of the earthquake. If this affects you then please contact us to help put this in place. Simply email [email protected] Assistance for Canterbury region Sovereign...

Kiwi Saver

Kiwi saver criteria If you have been with Kiwisaver for 3+ years and are over 18 years old then you can apply for the tax free $3000 government grant toward a home. The grant increases to $4000 in 2011 and $5000 in 2012. A couple is allowed to pool grants to $6000 this year (2011), $8000 next year and $10,000 the following years Who can get it? First home buyers aged over 18 years who have had a Kiwsaver account for 3 years. Must have a combined yearly income of $100,000 or less (before tax) for one or two buyers, or $140,000 or less (before tax) for three or more buyers Are there any other eligibility criteria? You must have contributed at least 2% of your income to a KiwiSaver scheme for the last 3 years You must be planning to live in the house for at least 6 months You must not currently own any other property You will have to buy within regional maximum house price caps. The caps are $400,000 for Auckland City, North Shore City, Rodney District, Wellington City and Queenstown Lakes District and $300,000 for all other areas Kiwi...