If you're an Auckland business owner looking to purchase an apartment or unit, you're probably already aware that the property market here moves quickly. Whether you're after an owner occupied home loan for a first home or an upgrader loan for something more spacious, understanding how home loans work for apartments can save you time and money.
Let me walk you through what you need to know about securing a home mortgage for a unit or apartment in New Zealand.
Why Apartments and Units Require Special Consideration
When it comes to residential mortgages, banks and lenders often view apartments differently than standalone houses. This isn't necessarily a negative thing, but it does mean you'll want to understand the nuances.
Apartments typically come with body corporate arrangements, shared facilities, and sometimes more complex title structures. Lenders like ANZ, ASB, BNZ, Westpac, and Kiwibank will all assess these factors when determining your borrowing capacity and the loan to value ratio they're comfortable with.
Some older apartment buildings or those with specific construction types might require additional scrutiny. Your mortgage adviser can help identify any potential issues early in the process.
Understanding Your Deposit Requirements
The deposit requirement for an apartment can vary depending on the property and lender. Here's what you might be looking at:
- 20% deposit: This is the sweet spot that helps you avoid the Low Equity Premium (LEP) and gives you access to the most competitive rates from lenders. An 80% LVR is generally viewed favourably.
- 10% deposit: Possible with many lenders, but you'll likely face a low equity margin (LEM) on top of your standard mortgage rate.
- 5% deposit: Available through some banks and lenders, but expect a higher LEP and more stringent criteria.
For a unit in Auckland priced around $700,000, a 20% deposit would be $140,000, while a 10% deposit would be $70,000. The difference in your low equity margin could add thousands to your repayments over time, so it's worth considering whether waiting to save a larger deposit makes financial sense.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at Finance Broker New Zealand today.
Choosing Between Fixed Rate and Floating Rate Options
Once you've sorted out your deposit, the next decision involves your interest rate structure. New Zealand borrowers have several options:
Fixed Rate Mortgage Options:
- 1 year fixed
- 2 year fixed
- 3 year fixed
- 5 year fixed
Fixed rates give you certainty about your repayments for the fixed period. Many Auckland business owners appreciate this predictability when managing their cash flow.
Floating Rate Mortgage:
A floating rate mortgage offers flexibility. Your mortgage rate will move up or down with the market, and you can make extra repayments or lump sum payments without penalty.
Split Loan or Combination Loan:
Many mortgage brokers recommend splitting your home loan between fixed and floating portions. This gives you some rate certainty while maintaining flexibility to make additional payments on the floating portion.
Loan Structures That Work for Unit Purchases
When it comes to how you'll repay your property loan, you've got options:
Principal and Interest (Table Loan):
This is the standard structure where you pay down both the principal and interest with each repayment. Your loan balance reduces over time, building equity in your apartment.
Interest Only Loan:
With an interest only loan, you pay just the interest for an agreed period (usually 1-5 years). This keeps repayments lower initially, which can be attractive if you're managing business cash flow or planning to sell before the interest-only period ends.
Home Loan Features Worth Considering
Modern home loans come with various features that can add value:
- Offset Mortgage: Links your savings or transaction account to your home mortgage, reducing the interest you pay
- Revolving Credit: Functions like a large overdraft secured against your property
- Redraw Facility: Allows you to access extra repayments you've made
These home loan features can make managing your home finance more flexible, particularly if your business income fluctuates.
How Much Can I Borrow?
Your borrowing capacity depends on several factors:
- Your income (including business income if you're self-employed)
- Your existing debts and commitments
- Your deposit size
- The property's value and type
- Your credit history
Most lenders provide a borrowing calculator or repayment calculator on their websites, but these are typically general guides. A mortgage broker can give you a more accurate picture based on your specific circumstances and access to multiple banks and lenders.
Working with a Mortgage Adviser
As an Auckland business owner, your time is valuable. A mortgage adviser can:
- Compare current rates across ANZ, ASB, BNZ, Westpac, Kiwibank and other lenders
- Explain the difference between special rates and carded rates
- Structure your first home loan or upgrader loan to suit your circumstances
- Handle the paperwork and liaise with lenders on your behalf
- Identify which lenders are most comfortable with your chosen apartment building
Mortgage lending involves considerable documentation, particularly for self-employed business owners. Having someone who understands both the property market and business finances can make the process much smoother.
Taking the Next Step
Purchasing an apartment or unit in Auckland is an exciting prospect. Whether you're looking at a low deposit home loan with a 5% deposit or you've saved a substantial 20% deposit to avoid LEP, understanding your options puts you in a stronger position.
The difference between a good home loan and one that doesn't quite fit can mean thousands of dollars over the life of your mortgage. Taking time to understand your options around fixed rate versus floating rate mortgages, exploring different home loan features, and getting clarity on your actual borrowing capacity are all worthwhile investments of your time.
Ready to explore your options for purchasing an apartment or unit? Call one of our team or book an appointment at a time that works for you. We'll help you understand what's possible and find a home loan structure that fits your situation.