Latest / The Curve / Navigating Mortgage Overwhelm.

Transcript

Navigating Mortgage Overwhelm. · The Curve

0:00
This podcast was inspired by an absolute disaster that Vic experienced a couple of years ago,
0:05
which probably up until this point, you haven't felt comfortable talking about.
0:09
No, I haven't.
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But you know what?
0:11
We live and we learn.
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And I'm going to share my
0:15
learnings with you of feeling very overwhelmed when mortgage rates went up.
0:20
Yes.
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Vic essentially had her interest rates, like a lot of other people,
0:24
like triple and an unbelievably stressful experience for people to all of a sudden
0:31
have to genuinely wonder how they're going to get through a cycle of very high interest rates.
0:36
So this whole episode is about how to navigate mortgage overwhelm.
0:40
We speak about Vic's
0:41
experience.
0:42
We also did a history of mortgage rates and what we can learn from a long period
0:47
of time because yeah, one of the things that you spoke about in this episode, Vic, was
0:53
you kind of don't know what you don't know.
0:55
So your experience, if it's been five years of owning
0:57
property or 10, there's a huge amount that you can learn from history in terms of when you should be
1:03
locking in interest rates or staying floating.
1:06
And we also go through five steps to take if you
1:09
are in a situation where you're feeling overwhelmed right now.
1:12
This is a really good conversation if
1:13
you are feeling overwhelmed, if you own property and you want to make sure you know what to do if
1:17
you are ever feeling overwhelmed, or if you're potentially about to buy your first property
1:22
and you want to make sure that you are navigating this with eyes wide open,
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this is a really good episode for anyone that's interested in investing in property or already is.
1:31
Welcome to another episode of the Property Podcast.
1:35
I am loving this series.
1:38
It's so fun
1:39
to be able to talk about a different asset class.
1:40
I mean, it's been years that we've spoken about
1:42
the stock market.
1:43
So to be able to really dive into property, I'm loving.
1:47
We just wanted to
1:47
a message from our partners BNZ who know that home ownership is not a straight line.
1:52
Sometimes
1:53
life just does throw you curveballs and there's actually nothing you can do about it.
1:57
You just
1:57
have to remember that they're all about supporting you through the hard stuff, not just the highlights.
2:01
So if you are in a position where you're having a total meltdown or something's not going to plan,
2:06
just remember that the sooner that you talk to the bank, the more options that you will have.
2:10
And it is never too late, no matter how dire things feel, to reach out.
2:14
They are always there
2:15
to help and not judge.
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So whether you're at the start of your journey or you're rebuilding
2:19
whatever has gone wrong, remember that BNZ has got the tools and the people and they're
2:23
ready to help you find a way.
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Thank you so much to BNZ for empowering this podcast and
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let's get into it.
2:32
So today we are talking about mortgage overwhelm and how you can, I guess, prevent it or think
2:39
about it differently.
2:40
Get through it.
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If you haven't bought a house, how you can think
2:43
in advance what would worst case scenario be and how can I make sure that I'd be fine if that
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happened you own a house you know it's a really positive start to the year we don't know what's
2:51
going to happen with interest rates no we don't but it's important to not let stuff like this
2:56
creep up on you and then be in a position like Vic was in 2023 which was pretty bloody stressful
3:01
yeah but we survived what doesn't kill us make you makes you stronger I mean do you feel like
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that about that time when it comes to your house i feel like anything in life i remember someone
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said to me they're like vick you've survived a hundred percent of the bad days in your life
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like true i love that yeah it's like whenever you think that the world's ending or like
3:23
you're in a ball crying on the ground you know you've had worse and you've dealt with it i actually
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someone said something similar to me the other day where they were sort of saying it's a future
3:32
you problem and you just have to trust that future you is going to be able to figure out whatever the
3:35
situation is and I quite like that oh what oh god we're going into quotes yeah what is it there is
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no such thing as unspent money you spend every single cent you've ever earned you spend every
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dollar in your bank account whether you know it or not money you haven't spent buys something
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intangible but valuable it buys freedom independence and being able to spend time in your own way
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every dollar of savings buys a claim check on your future and every dollar of debt you hold
4:02
as piece of future that someone else controls.
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So it's essentially saying like, even though you're like,
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this is money I'm not spending, it's like, no, no,
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you're spending that on freedom and dependence
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because you're putting it away for the future.
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Oh, I like that.
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So when we say like leftover money, like there's no such thing.
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Powerful.
4:17
Yeah.
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Did you write that down?
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Did you read it in a book or was it, did you find it online?
4:21
I read it in a book.
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I was going to lie and be like, made it up.
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Lol.
4:24
What book?
4:25
The Art of Spending Money.
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Oh, I'm so excited for this book review.
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We have been talking about it for months.
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So sorry if everyone keeps hearing us talk about it.
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It's a really great book.
4:33
Okay.
4:34
So, Vic.
4:35
Yes.
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In 2023, you ended up in a situation where you were completely overwhelmed by your mortgage.
4:43
Yeah.
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Lots of moving parts, lots of things were happening for you personally, for us business-wise.
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Yep.
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Can you maybe just set the scene for what was going on for your life, work, et cetera?
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Yep.
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And just, yeah, the economic landscape that meant you landed in a position that was really
5:00
really stressful and not really what you had planned.
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So I bought my house in Auckland in New Zealand in 2017.
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So I ate nine years ago.
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Wow.
5:12
Yeah.
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It's a long time.
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And also I think a really good example of how if you buy in the right area or an up and coming area,
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it can be so much more valuable in the future.
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Because when you bought where you did, it was kind of scary.
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Yeah.
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And everyone's like, you're buying at the top of the market.
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But also I think also the time thing, right?
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like 10 years goes so quickly it honestly feels like I bought it a few years ago do you know what
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I mean like when we always say like invest for five years minimum or 10 years minimum like
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that goes so quickly that's why it's always like get started ASAP because you honestly
5:45
and I feel like so old saying this but like you will honestly blink and it'll be 10 years
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you know I always feel like I'm like oh gosh time's flying by but it actually is oh yeah totally yeah
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um but yes bought my house for 1.5 million new zealand dollars so roughly like 700 000 pounds
6:08
and it wasn't really a do-or-upper was it like you needed to do stuff to it but you could totally
6:12
live in it straight away yeah yeah i could like the kitchen was kind of falling apart and gross
6:15
but it was like livable yeah yeah and there was like obviously stuff that roughed me up
6:19
like i think just having no carpet in bedrooms yeah because you have carpet in your bedroom i
6:24
I feel like it's so much more cozy.
6:27
I don't know.
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Some people might not bother, but I just really found it quite like hard.
6:31
Yeah.
6:32
It's funny because my, the houses that I've lived in where there hasn't been carpet in
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the bedroom, I think it looks way she here.
6:38
It doesn't feel, I mean, if you looked at the carpet in my current bedroom, it's quite
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gross.
6:43
Yeah.
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So it's not exactly nice.
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I probably prefer there to be none, but there's something about stepping out of bed and being
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on carpet.
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That's nice.
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Yeah.
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Especially in winter.
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Yeah.
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yeah um that was one of the first things I did was put carpet down yeah my salary at the time
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was like 300,000 a year which was which is about 120,000 pounds a year so it was like
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you you you were in a position where you were
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yeah well I mean it's so funny because obviously we're both in the same amount now which is you
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know not even a quarter of that so what you're trying to say here is like you bought a valuable
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house yes but it wasn't as though things were like totally out of reach for you you were able
7:24
to service the mortgage really comfortably yeah on the salary that you're on so yeah it's kind of
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a no-brainer in terms of the amount you were able to leverage from the bank I had a mortgage of about
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900,000 so nearly a million dollar mortgage and interest rates were about 3.5 percent at that time
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so did you put a deposit down that was way more than what you needed basically yeah yeah um because
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I wanted to have as little mortgage as possible because it was just me as well so if I did lose
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my job or couldn't pay that it just felt safe yeah it was just like you've always been funny
7:56
about debt yeah and I think my mum was just like make sure you put down as much as you can
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whereas like I would preface that with just being aware and I think we kind of get to this it's like
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there's always things that you need to leave room for you know like yeah it might be new carpet or
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it might need you know you might need to pay insurance you might need you know there's like
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things you might actually want to buy furniture that fits the place so like don't put down every
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single cent you have into a deposit because there's always like it's almost like an emergency
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fund if you're buying property it's like just leave a little buffer I think that's a really
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common mistake that a lot of first home buyers do because you're trying so hard to scrounge around
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and find all the things that you need and and to have enough to be able to actually get there
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yeah a lot of the time you maybe purchase slightly early and you don't have as much buffer as you
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probably need or you're like let's put in this extra five thousand to the deposit so then we can
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borrow more but it's like oh but you you actually you don't want to be moving in and not being able
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to afford cups and saucers and also so much so much can like come out of the woodwork you know
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like literally there might be something that's rotting there might be there's so many things
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that you just don't know.
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A house, you can do as much detail as you want,
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but the reality is there's always going to be things that pop up.
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I remember when I first got given the keys and, like,
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took over the house when I walked in and the house had been staged
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for the open home, so it looked beautiful.
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And then obviously all that, you don't buy all the beds and the,
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you know, the tables and the couches and that all got taken away
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and I walked in and I was like,
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this is what I've sent all my money on, you know?
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Like, it is just wood at the end of the day.
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It's like wooden foundations.
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It's like, cool.
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I also feel like when you don't have stuff in a place,
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it makes it look so much smaller.
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Yeah.
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So you would have walked in and been like,
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oh, my value for money is not as high as I thought.
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But so at the time, in the world, what was going on?
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Trump had actually just got into power.
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What?
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I know.
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His first round?
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His first round.
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That's so funny.
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And everyone being like, well, like you just didn't really know.
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Shit, was it that long ago?
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Yeah.
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He's been at this for a decent amount of time, hasn't he?
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We had Trump, then we had Biden, then we had Trump.
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Yeah, right.
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Wow.
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I'm fly.
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So, yeah, I bought this and then the world kind of went a bit crazy.
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So how long after you bought it?
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So in 2017, is that when Trump was in?
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And at the time, your mortgage rates were about 3.5% in terms of interest.
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And what is that as an annual amount?
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so interest it's about 30 000 in interest per year 30 000 dollars in interest and then you have
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to pay some principal on top of that so let's say like 40 000 a year yeah and so at this point in
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time i was paying interest and i was paying principal and then two years later i was like
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i'm going to renovate so i borrowed 100k from the bank so i've effectively been paying off for the
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last two years and then you went back and then I was like can I have that money back actually so
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yeah um is that quite common lots of people do that don't they where it's almost like because
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you're buying or sorry because you're borrowing money from the bank to add value to your shared
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asset that you own with the bank yeah they're happy to give you that money because it increases
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the value of what yeah which is really interesting because they don't take a profit from the increase
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and the value they just take back what you've borrowed they're just worried about if can they
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sell the house and still get their money back so if you're borrowing money to add value then
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you're going to sell the house for more hopefully and you're still going to get the money back but
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do you know what i mean in terms of because when you leverage from a bank they're not trying to
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make money out of you in terms of the compounding returns on your asset but you pay interest on the
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oh of course so they're like of course borrow more but to an extent yeah and then they're also
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giving you interest on it so you borrow that 100 grand again and you still you have to pay interest
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on that amount so yeah that's where they're making money you wouldn't be able to borrow that money if
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you were already at such a high percentage in terms of the equity and the debt but because
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i'd put down more i was able to like it was an easier conversation but i remember going to the
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bank and I was like hey can I get 50 grand for renovations renovations cost 50 grand anyway so
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I'm just getting some new door handles I know I was like oh my god such an amateur uh anyway and
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then they were like yeah cool then I went back again I was like oh need another 50 grand and
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they were like yeah and then I must have borrowed 150.
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Did it freak you out?
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Kind of but not really
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because I was like well I'm adding value and yeah.
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Quite fun to just be able to borrow more and have
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a little budget for your renovation like obviously you're paying interest on it but also you sort of
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pay it back yeah quite amazing but i think the second time when i asked for 50 grand they were
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like how are you going yeah like are you gonna just come back and keep asking for a month like
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at what point is this gonna stop and so i had to kind of convince them i think the second time
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around i was like no no trust me this is the final amount and then i needed more and i was like oh god
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knitting and back again but i think this is a really good example though of when we talk about
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high interest rates mean prices are low for houses because debt is really like expensive to borrow
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yeah but when interest rates are low i.e in the situation where vic is wanting to borrow money
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to be able to add value to her house it makes total sense to do it because the interest she's
13:22
going to pay on that is low it's low whereas if that was seven percent interest rates you would
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have thought twice about it well a i probably wouldn't be able to afford to do renovation
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because i'd be paying so much in interest but like if you're borrowing more you then have to
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pay more as a you know a dollar amount payback over time so it's like yeah there's like so many
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i guess handbrakes on the economy and productivity and everything when interest rates are so high
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which is what they're there to do right it's just slow down and in 2021 so the year
13:55
after you renovated is that right yeah a few years after yeah a few years after you renovated
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and this was...
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COVID.
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Was it COVID or pre-COVID?
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COVID.
14:05
COVID, okay, right.
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Well, 2021.
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Oh, sorry, 2020
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was the start of COVID.
14:09
Right.
14:11
Yeah.
14:11
And at this point in time
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rates were like
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even lower, right?
14:15
Yeah, rates went
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so down because nobody knew what was happening in the
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economy or like what was going to happen.
14:20
People
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weren't able to work.
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So, yeah,
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governments all around the world reduced
14:24
interest rates like super rapidly.
14:27
They went down to 2% and I was like
14:28
happy days you were like oh maybe I'll build a shed and I remember having conversations people
14:37
at work and they were like oh we've locked in like these rates are so low like we've locked
14:41
in like five year fixed mortgage rates and I was like you guys they're gonna go lower like
14:47
they've been so you know like I'd only known like three and a half was the highest I'd ever been
14:52
and I've been ever since I'd owned a house I've gone down and down and down and down and down so
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I was like, that was all I knew.
14:57
So I was like, well, of course,
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I'll just keep going down and down and down and down.
15:00
Anyway.
15:01
Oh, wow.
15:01
Jokes on me.
15:08
It's honestly just so funny how sometimes,
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you know when people say, oh, age is wisdom.
15:14
Yeah.
15:15
I think when it comes to money, investing, interest rates,
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everything, having a really holistic view of the economy.
15:23
Yeah.
15:23
age does give you wisdom because of course you didn't know any different of course you were
15:29
going to think that it's totally and it's like it's like when the stock market just goes up and
15:33
up and up and up and up and you forget it becomes such a distant memory or maybe you've just joined
15:39
your investing journey you've never experienced a correction in the stock market that I remember
15:44
when it first happened and I was like yeah you're just like you don't know what it feels like if
15:49
you've never experienced it so therefore it's not in your wheelhouse of thinking um yeah so then
15:56
in 2021 the world was still a bit of a like what the f is going on interest rates were super low
16:02
and then then we came out of covid remember and it was like everything was going like absolutely
16:08
gangbusters we had like super low interest rates the stock market was on a tear on a chair like
16:13
Honestly, everything.
16:14
Sounds painful.
16:15
Everything was just like super exuberant.
16:19
Wait, when is this?
16:20
This is kind of 2021.
16:22
Oh, right.
16:23
So interest rates were super low.
16:25
And everything was going off.
16:26
I remember the stock market's forward looking.
16:29
So that had like roofed it.
16:32
Interest rates were super low.
16:33
I mean, people had lost their jobs, et cetera.
16:36
But like it was.
16:37
It was the golden days, wasn't it?
16:39
I mean, golden days for some people.
16:42
some people are probably like oh my gosh like what how am i gonna earn a living but yes golden days
16:46
for investing essentially like the tech companies the zooms of the world they're like oh my god
16:52
yeah yeah everything was just yeah what's the cost of living at this point a huge topic of
16:57
conversation not yet right no yeah all the bottlenecks of like supply chains and logistics
17:03
hadn't quite got to us yet so um yeah and then kind of 2023 rolled around and they were like
17:10
whoa okay we need to kind of slow down this economy so interest rates went up and Vic had
17:16
not locked in her two percent interest at this point we were floating right yeah so I've even
17:21
still got a friend that I worked with who locked in two percent and it's still it's still two
17:26
percent I know what genius he was just sitting there this like young young guy just sitting
17:31
there just like laughing at all of us like how honest did he manage to do it I don't understand
17:36
But why would banks even let them do that if they know they're not going to be that low forever?
17:41
Wouldn't everyone just lock them in?
17:42
Well, it's kind of like you could do – usually it's like, okay, let's say interest rates are 2%.
17:49
Six-monthly might be like – might be 2%.
17:52
Like the longer you go out, the more – the slightly higher it is, but it might have been 2.5%.
17:56
You know what I mean?
17:56
So you're sitting there when interest rates are 2% and we've been falling and falling and falling.
18:00
and to be sitting there and able to lock in two and a half,
18:04
which is slightly higher for five years when you're like,
18:07
well, they've been falling.
18:08
So what if they fall to one and I've locked in two and a half?
18:12
So it is kind of like you're trying to be like,
18:14
what's the next five years going to look like?
18:16
And what's, yeah, so it is, it's a bit of luck.
18:19
God, he must have been, was it a guy?
18:20
Yeah.
18:22
Absolutely stoked when all of this started kicking off.
18:24
Yeah.
18:25
And I remember everyone in the office is like,
18:27
like dying with like interest rates going so high.
18:30
anyway that's when I left my job uh so basically interest rates went from two percent to six percent
18:41
that went from 300k to like 70 I think 70 maybe even 60 yeah and I mean surely at this point it
18:51
was sort of panic station this was the first year you were full-time in the curve not great timing
18:55
well I must I think I did yeah no I think what came first was they left my job and my interest
19:01
rates were going up but like they went up and up and kept going up and I remember being like
19:05
oh my dear like when when is this gonna stop like I'm I can't afford and then I went to the bank and
19:11
I was like look this is my situation um I want to go interest only uh and they were like no
19:20
anyway why'd they say no well they were just like you're fine at the moment yeah like you can afford
19:25
it but it means I can't like have any of the luxuries that I had previously had so is that
19:31
because they could see what was in your bank account or yeah yeah um anyway and then I swapped
19:36
banks and I was like okay well if you're not gonna help me out here I am going to go to another bank
19:44
and get interest only but the key thing with interest only though is you you're not making
19:48
your debt smaller so I'm not getting like a head if that makes sense and that's one thing to
19:54
remember is that interest only is great but you are not paying off your debt so your debt is not
20:00
getting smaller so you're just going to keep paying it for longer and longer if that makes
20:04
sense you know like it's a short-term solution it's not long term I'm just kind of I'm just
20:09
kind of going around in circles yeah like I'm not because you're still having to pay interest
20:13
on the total amount that you owe yeah so if you're never paying down that principle i.e.
20:18
the total
20:18
amount of money you owe the bank then you're paying interest without getting literally anywhere
20:23
Yeah.
20:23
The point is, the more you pay off your principal, the lower your interest gets because you're
20:26
paying interest on a total number you owe the bank.
20:28
Yes, exactly.
20:29
Yeah.
20:29
So it's like having an interest rate and not paying, sorry, it's like having a credit card
20:32
and not paying anything off.
20:34
You're just paying the 20% interest.
20:36
You're on a hamster wheel kind of.
20:36
Yeah, you're just on a hamster wheel.
20:37
You're not paying any of the, I don't know, 10 grand of debt.
20:40
It's not getting any smaller, staying the same and you're just paying the same amount
20:43
of interest.
20:44
Whereas if you pay, you know, even $100 off that credit card, you're paying interest on
20:50
$9,900.
20:51
You get smaller and smaller.
20:52
Yeah.
20:53
Should we take a look at the old Daily Mail article that went out at this point in time?
20:58
The title being, Homeowner Reveals Shares Paying $60,000 a Year in Mortgage Repayments
21:03
After Interest Rate Doubled.
21:05
Like, how was that headlined?
21:06
I feel like that was pretty much a lot of people in the world had seen their interest rate double.
21:12
Yeah, but not many people talked about it publicly.
21:14
Or put dollar amounts extra.
21:14
Everyone was suffering in silence.
21:16
Financial expert Victoria Harris initially paid $27,000.
21:20
Oh, right, so it's $27,000.
21:21
The Curve founder said interest increased to 6.5%
21:25
New Zealand's economy has entered a recession
21:28
And then there's this video that we put up on TikTok
21:31
That did go quite viral
21:33
And it was you talking about your interest rate
21:35
So I was paying $27,000 six years ago
21:39
At 3% mortgage rate
21:41
And now I'm paying 6.5%
21:45
So it's basically doubled
21:46
It's more than doubled, yeah
21:48
I'm now paying about $60,000 a year
21:53
so i was i'm paying now more than double what i was paying the new zealand-based duo received
21:58
more than 350 comments with many criticizing miss miss harris i forgot about that so many guys
22:04
jumped on this video and were basically talking to you like you didn't know what you're talking
22:08
yeah she can't have had that much paying that much interest of her mortgages that i was like
22:13
mate my calculations are right also like i'm the one paying it i know what i'm paying like
22:18
this is one of the comments yeah that's what can happen with interest rates they can vary
22:23
dramatically due to the economy why is she surprised because i said i've never been in
22:30
an environment like this and i mean that's valid comment i shouldn't i should have done my numbers
22:34
and been like okay if interest rates do double can i still afford this and but that's what the
22:38
bank's job is right they're supposed to factor in these rise in interest rates we're also in a world
22:44
that nobody had expected.
22:46
So credit to me.
22:47
Thank you.
22:48
I agree.
22:49
One thing I should say is you,
22:52
the bank during COVID time,
22:54
I remember was super accommodating
22:56
in terms of like anyone that needs
22:58
like to pause their repayments
22:59
or anything like that,
23:00
definitely get in touch.
23:01
They don't want to go down the route
23:04
of like putting you in financial strife
23:06
or going through a mortgagee sale
23:07
or anything like that.
23:08
You know, they want to help you keep your debt
23:12
because then you pay interest on it.
23:14
But it's just to remember that like if you did pause repayments,
23:17
it's not like, cool, there's just three months I don't have to pay
23:19
that just gets added on to the end of your mortgage.
23:21
You know, like your debt's not changing.
23:23
If you're not paying down your principal, your debt is not going away.
23:27
One thing you do have to tell the bank is when your salary changes.
23:31
Do you?
23:32
I didn't realize that.
23:34
So you have to give them a little FYI.
23:35
If anything, like substantial changes.
23:37
But also I had a massive investment portfolio that they do not care about.
23:42
Really?
23:43
They don't care about your assets.
23:44
They don't care if I had seven other houses.
23:46
Why?
23:47
Because it's like your serviceability of the mortgage is what's important.
23:51
Can you pay your interest and your principal each month or each fortnight or whatever it is?
23:57
When you say they don't care about your other assets, can you just elaborate on that?
24:00
Do you mean, for example, if you, in that situation, you've gone to them and said, hey, look.
24:05
Like I was like, look, my salary has gone down, but I've got all these investments, which is super liquid, which I can liquidate in a heartbeat if I ran into financial strife and couldn't pay my mortgage.
24:15
And they were just like, no.
24:17
What do you mean, no?
24:18
They were just like, we can't.
24:20
Like that's not income for you.
24:22
So it's like that is an asset.
24:24
And to be honest, that asset could go to, you know, could decrease in value, you know, overnight.
24:30
But they don't.
24:31
It's all about your income.
24:33
And that's why I like pensioners.
24:34
it's so hard for them to buy property at their age because they're on pensions.
24:38
They don't have income.
24:39
Or when you're retired and you don't actually have income,
24:41
really hard to buy assets because you don't have that.
24:46
You can't service your mortgage.
24:48
But you were able to pause even though you had assets and money.
24:53
So what is –
24:54
I removed my principal and just – I changed banks because the bank I was in
24:58
was quite inflexible.
25:00
And I changed banks and was able to go interest only,
25:02
which was a huge, huge help.
25:04
But I'm just trying to understand when you say the assets are kind of unimportant.
25:08
Do you mean when buying?
25:09
Do you mean if you have to change what you're paying back?
25:12
Like, I'm just trying to understand what you mean by that.
25:15
They're unimportant.
25:16
Like, all they care about is what is your income.
25:20
Like, your asset, like, obviously your deposit and what you put down is important.
25:23
But, like, they just care about what your, when it comes to your mortgage and paying
25:29
your mortgage, like, they just care about what your income is coming into your bank
25:32
account each oh and your outgoings but they just care about what that what that but were you
25:37
basically highlighting your assets to say look don't panic I'm not going to have to sell because
25:42
I have all of this behind me and it is liquid stuff that I that if I get to a point where I'm
25:46
there's one month where I can't pay I've got this other stuff that I can sell yeah but was there
25:53
was their response to that we actually don't mind if you have assets that are liquid or you can make
25:58
liquid very quickly the only thing we're looking at in this current situation is what is the money
26:04
coming in and yeah you're right you don't have enough to pay for interest in principle so we'll
26:08
pause your principle for now was that kind of they said we won't they said we won't allow you to go
26:12
to principle sorry the second the second one yeah they were like i just went to them and i said look
26:17
this is my situation this is my income can i go interest only and they were like yeah so it's like
26:23
i think it's just like shopping you know like it's like do you want my business yeah because
26:28
Because you have to think of the debt for them because they're getting interest, right?
26:31
Yeah.
26:31
And that's exactly what we said before.
26:34
The bank is making money off helping lend you money and then you pay them interest.
26:38
So you would be paying the other bank interest, but because they weren't helping you, you
26:43
can transfer that debt so that it's almost owned by or the responsibility is now with
26:48
a new bank and they're the ones that then get your interest.
26:50
So it's in their best interest to try and accommodate what you need.
26:53
And I think it's also like having a phone with a certain provider, right?
26:57
if your phone's with Vodafone and they're not giving you a level of service that works for you
27:04
or aren't being accommodating you can shop around you can be like okay you know what I'm going to
27:08
take my service or my my phone or my mortgage somewhere else that you like I think people
27:14
forget there is flexibility in that and I think don't underestimate what a conversation asking
27:20
the right questions can do because like in that scenario if you hadn't gone interest only I
27:27
imagine you would have had to just completely eat into all like make all of sell a lot of your
27:31
investments right yeah like it would have really hindered your ability to yeah and I knew I wasn't
27:37
in like a diet because like they were like oh you want to go down financial hardship route and I was
27:42
like no like I just want I just want I just want to stop paying principal so that I can still
27:49
maintain my position but not be so stressed and it was just like this kind of like computer says no
27:54
you know and I was like oh okay I'm just gonna go and I had been there with them for a couple
27:59
years so I was like you know what I maybe it is time to shop around and yeah I did we were talking
28:05
before about how time almost breeds wisdom and if you don't know what interest rates have done
28:12
over a long period of time it can be quite hard to make a decision on locking in a fixed rate or
28:18
a floating rate yeah you don't really know what's good what's scary do you think it would be worth
28:23
just doing like a brief history lesson on where interest rates have been over a period of time
28:32
to give context for like how much they can go up and down it's kind of unlimited to be honest
28:38
you know like we could have interest rates of 20 but gosh the world would be absolutely flying at
28:43
that point sorry 20 the world would actually be would be an absolute basket case at that point
28:49
we could have
28:51
we could have
28:52
interest rates
28:54
like Japan
28:54
has had negative
28:55
interest rates
28:56
you know like
28:56
they're paying people
28:58
yeah
28:58
to take money out
28:59
yeah
29:00
you're joking
29:01
give me
29:02
give me money
29:02
and I'll also pay you
29:03
to take it
29:04
yeah
29:04
you borrow
29:05
I don't know
29:06
borrow a million
29:06
pay back 900
29:07
kind of thing
29:08
what
29:09
why are we not all
29:10
living there
29:10
it's amazing
29:12
it's a bit of a like
29:13
counterproductive
29:14
to the whole economy
29:15
yeah it's kind of like
29:15
when the system breaks
29:17
you know
29:17
It's like there's something seriously going on.
29:19
It's like deflation.
29:19
Yeah, yeah, yeah.
29:21
Yes.
29:22
So, but if we do a bit of a history lesson, over the last 30 years in New Zealand, so
29:29
mortgage rates were about 11% in 2008.
29:33
So that would have been...
29:34
Yeah.
29:34
That was the global financial crisis.
29:36
This is all floating interest rates because like fixed changes like depending.
29:40
Yeah, yeah.
29:41
But so if you, let's just use your example where you went from 2% to 6%, so it tripled.
29:46
that went from 2% to, did you just say 20%?
29:50
Like 11.
29:50
11%.
29:52
God, that would be like over 100 grand in just interest
29:56
on what you were originally paying 27 for.
29:58
Like that's people's entire incomes even more, you know,
30:01
like how can you pay that?
30:03
And that's when you really start to sell.
30:06
And that's kind of, I guess, that's like the second flow-on effect
30:10
of what happens when there's a recession or a global financial crisis
30:14
like there was.
30:15
it was like, yeah, you start having people that are just like,
30:17
I need to sell my house.
30:19
And then people can't afford because they can't take out mortgages.
30:22
But then these people that have to sell, sell them for way less.
30:25
And this is when the banks get into trouble because they've lent too much money.
30:27
And it's like, yeah, yeah.
30:28
Oh, my God.
30:28
There's a downward spiral.
30:30
Yes.
30:30
Yeah.
30:30
And so this is why there's actually been a lot of regulation put into place
30:33
about these loan-to-value ratios so the banks can't lend.
30:37
My dad always talks about the LTV.
30:41
Yes.
30:42
So it's essentially just like the, it is the amount of equity versus the mortgage.
30:46
So they cannot lend you more than 80% of the property price.
30:50
So if you've got a million dollar house, 800 grand is the max that banks can lend you.
30:56
So you have to come up with 200 grand deposit.
30:58
So in the UK, there's situations where you can put it, put down 0%.
31:03
So you can go to the bank and get 100% mortgage on your property.
31:07
So if the house is a million dollars, you can get a million dollar mortgage.
31:10
Is that just different banking systems have just different regulations and there's no real rhyme or reason.
31:16
It's just what works for New Zealand, what works for the UK is all very different.
31:19
Yes, yeah.
31:19
And with those, you end up paying quite, you pay a premium interest.
31:23
If you're borrowing 100%.
31:25
Yeah, yeah.
31:26
Or, and even in a situation with your LVR, if it's like 90%.
31:31
And you're only paying 10% of your...
31:33
Then you pay slightly, like it's almost like an insurance premium on top of your mortgage rate.
31:38
And that's just because they're taking more risk because they're putting in more than you are kind of.
31:43
They're not.
31:44
Yeah.
31:44
But sort of.
31:45
They've got to be compensated for that extra risk that they're taking essentially.
31:50
But yeah, a lot of those kind of changes came in after the global financial crisis.
31:53
Because like, yeah, like if your interest rate's going from 3% to 11%.
31:58
Oh, so stressful for so many people.
32:01
Yeah.
32:02
If we were to look at other countries, are there, have they all, like in the global financial
32:08
crisis, was that when everywhere all over the world interest rates were skyrocketing
32:11
or is it?
32:12
A lot of them.
32:13
Like Australia didn't really like get affected by the global financial crisis really.
32:18
I feel like they've done so well through all of these enormous financial hurdles.
32:22
Yeah, they have.
32:23
Like even now, if you look at the New Zealand economy or even the UK economy, it's struggling
32:28
a lot.
32:28
Australia's not.
32:30
They're more tied to China and China's growth.
32:34
So a lot of their money into their economy, their GDP,
32:38
all of that is tied to exports to China.
32:43
So big, big mining country, Australia.
32:45
So a lot of like iron ore, a lot of like aluminum, steel, all of that.
32:50
So when China's booming, it's buying from Australia,
32:53
Australia's booming.
32:55
A very simple, very simple kind of economics 101.
32:58
But yes, Australia, the highest theirs got was in 2023.
33:02
So when mine went up in 2023 in New Zealand, so did Australia's,
33:07
but it was about pretty similar, like about 7% to 8% was the highest
33:10
that they've had.
33:11
And in the UK, yeah, they peaked at about 9% in 1998.
33:17
So again, not as impacted as the global financial crisis
33:20
as New Zealand was.
33:22
But yeah, I guess it just shows like these big swings, right,
33:25
over like and the reason I chose 30 years is like usually you have a 30-year mortgage
33:30
that is kind of a standard time frame of a mortgage is about 30 years and so you need to be
33:35
prepared for the ups and the downs yeah and I think it's just like remembering that yes we
33:42
might be in a low interest rate environment now or we might be in a high interest rate environment
33:46
now whatever it is it could still get worse you know what I mean I think it's just factoring in
33:53
that you know looking at your financial situation being like are you prepared that if interest rates
33:59
went up another three or four percent like could you manage it is there a way that you know could
34:04
you cut back on something or are you living so tightly and your mortgage is so much of your
34:10
income that that would really have an impact on you or your household income or whatever like
34:15
that's because a few percentages here and there shouldn't be a huge impact on your financial
34:21
position.
34:21
Do you almost feel like it would be sensible for people to look at mortgage rates,
34:27
whatever they're on now, and think that they can go up at least 6% in either way and be prepared
34:32
for that?
34:32
Because what I'm seeing here is, you know, 2% to 10%.
34:36
That's like 8% difference across
34:38
a 30-year period.
34:39
The good thing is it doesn't happen overnight, right?
34:41
That's when you get like
34:43
serious shocks in in an economy like these these do steadily go up but like also steadily
34:52
like it helps kind of ease the burden but you're still going from yeah like three percent to seven
34:56
percent or whatever it is but it does help you like slowly adjust your outgoings or your spending
35:02
or like talk give you time to talk to your bank or like all of that but yeah the one thing i am
35:07
almost thinking is a lot of us probably leverage ourselves as much as possible and really we said
35:14
this at the start stretch ourselves from a deposit point of view don't have a lot left over
35:19
I think the main thing that this is teaching me is if you are buying a property that you are living
35:23
in so this is yeah you know you're not outsourcing the the rent isn't paying for its mortgage etc
35:29
like what I've done with the investment property but actually you're you have to be able to sustain
35:36
your lifestyle as well as pay back your mortgage and the interest yeah you don't want to be so
35:41
close to the line that you yeah that if things go up a lot you're unable to do anything and i'm
35:50
pay for child care unable to like pay for food yeah electricity like basic things i think it's
35:57
and i think that's really important like don't yes yes what the banks will lend you is a dollar
36:02
amount and what they can like risk-wise lend you.
36:06
But like, it's not a target.
36:08
You don't have to
36:08
borrow all of that.
36:10
You know, like, yes, the bank was lending me 900,000.
36:12
I didn't have to go for
36:13
all of that.
36:14
I could have gone for like 700 grand and bought something, bought a smaller place
36:19
somewhere else, you know?
36:20
And been less financially stressed in the time in which the
36:22
interest rates went up a lot.
36:24
Exactly.
36:25
What kind of buffers do banks normally actually put in place
36:29
for these rates moving do they factor in that eight percent difference yeah so like whenever
36:34
you borrow money you should be factoring high interest rates but the bank also does as well
36:38
and I remember when I was going to to borrow and I was like but I can afford this like why
36:44
I think I did like a back of the envelope calculation I was like cool okay this is
36:48
like what I can afford and anyway the what they lent me wasn't as much as I thought they would
36:54
lend me thank goodness um but yeah they're doing stress tests because that they're putting in kind
37:01
of an extra an extra three ish percent on top of in terms of interest rates so if interest rates
37:06
are at four percent they're putting in seven to make sure that you can still pay it at seven
37:11
do you know what i mean i know but i guess looking at those like the 30-year time horizon and how
37:15
much they have they've gone up by like eight yeah so it just it just feels like i i understand three
37:21
percent is them being super cautious yeah but at what point do you need to take your own
37:27
responsibility around knowing it could go even more than that I mean those 30 year time frames
37:33
right there's been like two or three situations where we've got it's in some in certain regions
37:39
only like one situation where you've got that high interest rate so the risk you would hope
37:44
is like okay if it's going to happen once in 30 years that it's also like what is the reason behind
37:50
that interest rates going up you know like there was like covid which is totally out of the blue
37:55
how do you navigate that from a personal finance point of view um but yeah that's the banks like
38:02
that's why the more you can put down an equity the better because you've got that buffer right
38:06
in terms of like but what do you mean buffer like as in you could pause your principal because you
38:11
paid so much off i mean as in um if interest if house prices fall because there's whatever else
38:16
is going on in the economy like global financial crisis house prices were falling off a cliff
38:19
and you're paying huge interest so not only if you is your asset worth way less but you're paying so
38:25
much more on it and then if you're like look i actually can't afford to pay this anymore i need
38:28
to sell it you're selling it at a lower price so it's like all like it's all interrelated it's not
38:33
like interest rates go up or down dramatic amounts in isolation like there's so much else going on
38:38
in the economy but um yes the banks do put in a buffer because they're the ones taking the risk
38:45
at the end of the day on you in terms of hoping that you'll be able to pay in the back over time.
38:49
So yeah, if you're sitting there going, but hang on, I can afford interest rates right now
38:54
with my income, like doesn't really matter.
38:57
They're factoring in that kind of three,
39:01
two and a half, 3% extra in terms of the buffer.
39:03
So do you think then the general rule of thumb
39:07
here is a bank is not going to lend to you if you're not able to keep up with interest rates,
39:13
either being less or far more expensive yeah you don't need to on top of that factor even more for
39:21
like double the worst case scenario you just need to be really aware that you don't want to be so
39:27
close to the line in terms of how much you're borrowing so that you're so stressed if the worst
39:32
does happen there's just no understanding the risks because like in my situation right interest
39:36
rates went up and the bank was like well you can still afford it but i had to like i would have had
39:40
to seriously change my lifestyle.
39:43
So it's like if I had factored in, like, do you know what I mean?
39:47
They don't care about you having to change your lifestyle.
39:49
Right.
39:50
So if you're like, well, no, no, I actually need to pay for these essential things or
39:53
I don't want to significantly change my lifestyle, then you need to factor in or borrow less
39:58
or factor in a higher percentage buffer and all of that.
40:01
So does that make sense?
40:02
Yeah.
40:03
I guess the lifestyle thing is really interesting because if you're a single person without
40:06
a family, it's one thing.
40:07
Yeah.
40:08
If you have kids and you have other stuff to pay for, what a bank or someone else may assume is essential versus not essential is – do you know what I mean?
40:20
Like, I guess you have more –
40:22
You have more control.
40:23
Control where it's just you.
40:25
But I think it's also with – like, banks, they are incredibly helpful.
40:28
And I think I just want to reiterate, like, don't – the worst thing you can do if you do start feeling overwhelmed with your mortgage is to, like, bury your head in the sand and not talk to them.
40:37
and just avoid paying month on month on month.
40:40
That is worst case.
40:42
Like front foot it.
40:43
Just like you did.
40:44
You massively front footed it.
40:45
Just front foot it and be like, look, this is my change in my situation.
40:48
Don't ignore it.
40:49
It's like with any debt.
40:51
Call the credit card company.
40:52
Call the mortgage.
40:53
Just don't.
40:55
The worst thing you do when you're feeling overwhelmed is avoid.
40:58
You just need to front foot it.
41:00
And I think you'll be quite surprised at how helpful or the options that the banks have
41:05
that you probably never even thought of.
41:07
Like interest only,
41:08
like deferring your payment a couple months,
41:10
giving you a bit of like breathing space.
41:12
Like all of these things they introduced during COVID
41:14
was super helpful.
41:15
People that have lost their jobs
41:16
and people that, you know,
41:17
are trying to navigate this new world.
41:19
So yeah, I think that's just something
41:22
is like don't bury your head in the sand.
41:24
Also talk to friends and family.
41:26
You know, they might be like,
41:27
look, we're happy to help you out
41:28
for a couple of months or something.
41:29
They might be like, you know what?
41:30
We'll look after your kids,
41:32
you know, to pay for childcare.
41:33
I don't know.
41:33
I keep coming back to childcare.
41:37
Well, I think it's just infinitely more stressful to not be able to pay
41:43
if you're not the only one you're worried about.
41:45
Like if your house is where your family lives and it's your kid's home
41:50
and it's their sense of stability, the idea of having to sell or move
41:53
or whatever would be super overwhelming.
41:56
And banks are humans.
41:57
Like they are big institutions, but they're also humans in there.
42:00
And like the last thing they want to do is for you to force sell your house at a mortgage sale.
42:07
You're not going to pick up the phone and be like, hey, look, I'm in a bit of financial hardship or like I need some help.
42:11
They're not going to be like, oh, your house is up for sale.
42:13
You know, like they're not that ridiculous.
42:15
And I think that that's for them.
42:17
That problem is their last, last, last, last, last resort.
42:19
So, yeah.
42:20
Yeah.
42:20
No, I think that's really good advice.
42:22
Okay.
42:22
I think we should chat about actual tangible steps that people can do, think about, consider.
42:30
if at any point in their life or at any point in their home ownership journey, they need to
42:36
seriously reconsider what they can afford or how they approach repaying their mortgage.
42:40
What are some of the top steps that we need to think about, be aware of?
42:45
And you might not be
42:45
in the situation right now, but it's really, really good to know this if and when you ever are.
42:51
Because economies change, right?
42:52
Interest rates change, your financial situation change,
42:55
your job might change yeah and this is from bnz martin king which is the the general manager of
43:00
customer assist from his perspective like a mortgagee sale they are so rare and they are
43:06
genuinely the last resort so there's like there's so many options that banks go through before they
43:12
get to that point so i think and i i felt like this like there's this fear that if you let the
43:18
bank know and you're a bit vulnerable with them that they're going to come down hard or that
43:22
they're going to like be putting a four signs out outside your house before you've had a chance to
43:26
think about it you're going to lose your house and you're going to like it's like no no no no like
43:30
that's such unique cases and that is yeah it's worst case scenario for them as well as for the
43:37
person who owns the house and they try and will try and collaborate with you in any way they can
43:42
to make sure that doesn't happen yeah they work really closely with you to find a solution but
43:47
some of the tips are like, firstly, like just take a breather, I think is really important.
43:52
Like we're talking about being overwhelmed here.
43:54
And I think being overwhelmed, you know,
43:57
your mortgage is probably one part of your financial situation that's feeling overwhelming.
44:03
Probably the biggest part, but it could be that like, you know, there's so much other debt,
44:06
there's so much, you know, expenses or, you know, something's gone wrong.
44:11
Just take a breath,
44:12
sit down, get all your numbers in front of you.
44:13
And I mean, we talk about that all the time when
44:16
we talk about budgeting, getting out of debt.
44:18
It's like just lay it all out in front of you
44:21
to get a clear picture, first of all, and then write down what are your current repayments?
44:28
When does your rate expire?
44:30
Because we could be in a situation where you could be a couple of
44:32
hundred dollars more, better off in a few months.
44:36
And that might just need to be tied over for a
44:38
few months or something like that.
44:40
Write down when your fixed rate expires, what's your new rate,
44:44
and then kind of what the repayments look like.
44:46
And again, if that's changes,
44:48
if the interest rates go up and you need to pay more,
44:51
then at least you just have the full picture, right?
44:53
I think as soon as you have numbers,
44:56
facts, everything in front of you really clearly defined
44:59
and you instantly feel more in control.
45:02
You know, it's just like
45:03
if you redo your financial budget for yourself
45:06
or in any situation,
45:08
say you need to pay someone back
45:10
or if you know what needs to be done,
45:12
the anxiety it's like imagine a bubble of anxiety is burst as soon as you've done the work to
45:18
understand it more yeah yes it's still overwhelming sometimes and yes you still have things that you
45:23
have to like seriously action but I do think a huge amount of mortgage overwhelm is people feeling
45:29
out of control because they haven't stopped to put themselves back in the driver's seat and figure
45:33
out what what they need to do it's also removes a bit of the emotion right you kind of look at it a
45:38
bit more pragmatically you're like okay cool this is what I've got coming in this is what I've got
45:42
going out this is what it's going to jump to whatever this is what I need you know it's just
45:45
like it's just a bit more of a objective view rather than like an emotional view the second
45:51
thing um we kind of touched on this but talk to your bank early like they genuinely want to help
45:57
you out and yes there may have been people that have had bad bad experiences with banks but 99%
46:03
of the time like they're that they want to help you get out of the mess they don't want to make
46:08
your life harder also when you go in a total crisis in the 11th hour you're not really giving
46:14
them the chance to help you find a new way forward so i think what your example vic where you
46:21
immediately saw okay i'm gonna have to change my lifestyle yeah or i could do this and if your
46:26
decision is i don't want to have to change my lifestyle or whatever your personal situation is
46:31
front foot that as soon as you know rather than waiting to be desperate yeah and and then i think
46:37
also you just get so much more emotional yeah and I think it's also there's options that I didn't
46:41
even know existed right like there's things you might be like oh well you know the only option
46:47
is interest only it's like no no there's so many you can extend the term of your your mortgage so
46:52
your all your repayments come down you can get temporary relief where you don't pay for a few
46:56
months like there's so many different ways to cut it that that could be helpful to your situation
47:01
depending on what your situation is but yeah but I think the overarching thing is that just like
47:05
early conversations give you way more flexibility because if you haven't paid your mortgage for a
47:10
few months and you've just ignored the bank's calls and all of that, they're going to be in a
47:14
bit more of a pissed off situation as well.
47:16
Do you know what I mean?
47:17
Whereas if you're like, look,
47:18
I can see my income is about to fall, I'm about to lose my job and my repayments are going up,
47:25
what's the best way to navigate this?
47:26
You can figure out a solution together.
47:29
Number three is check whether you can save money elsewhere.
47:32
So this is kind of coming back to your
47:34
lifestyle changes right like you know is there things in your non-essentials that you can cut
47:38
back on like yeah subscriptions can you talk to the electricity provider can you you know try and
47:44
get a better deal there is there better insurance plan like all of those things can really help
47:48
even though it might be only like 30 40 50 50 dollars 50 pounds or whatever it is it can also
47:54
you know can just alleviate a bit of financial stress i think it's almost this one is like go
47:58
back to the drawing board.
47:59
So once you know everything that you, once you understand the
48:04
mortgage position and where you are, it's then taking a second look at your numbers everywhere
48:10
else and feeling confident in knowing where you could either pull money from or readjust or rework
48:15
things or as Vic said, actually save money to free up more to be able to put towards the mortgage
48:20
repayments that you're now either behind on or stressed about.
48:24
Yeah.
48:25
Number four, don't suffer
48:26
in silence and I think this is a big one yes we said talk to your bank but like talk to family
48:31
and friends I reckon there'd be so many people within your circle of friends your community
48:38
that have been in a similar situation that could have quite unique and creative ways of helping
48:44
you out or something they did that might that you might be able to implement just don't suffer in
48:49
silence I think that's a big for any kind of debt it's like I don't know they might also be suffering
48:54
and you can suffer together you know yeah I think it's just you don't know how many people that have
49:01
probably gone through a very similar thing I mean that's probably why this went off on daily mail
49:05
because you weren't I mean how many people were suffering with those increased mortgage rates and
49:11
the it's so many most people all over not just in New Zealand and Australia but everywhere yeah so
49:17
talking about it publicly makes other people feel validated that they're also what they're
49:22
experiencing is also stressful.
49:24
Yeah.
49:25
And lastly, I think is talk to a broker or an advisor.
49:29
Like,
49:29
I think mortgage brokers are totally underrated.
49:31
Like they are there to go and shop around and find
49:35
new rates for you.
49:36
Like when I was talking to my bank and they were being inflexible,
49:39
I did it myself and went to talk to another bank, but I could have got on the phone to a broker and
49:42
be like, look, I want to go interest only.
49:45
And this is my current situation.
49:47
Like, can you go
49:47
and find me a bank that can do better than this rate that I'm currently at?
49:51
Like that is the
49:52
your job and they don't you don't have to pay them they get paid by the banks like they're
49:55
out there to find you the best deal um whether you're getting a mortgage for the first time
50:00
or whether you're feeling a bit overwhelmed and wanting a change uh wanting to like refinance and
50:05
find a new deal the more people you talk to the better yeah yeah and obviously start with your
50:10
bank first but if you can't get what you need then there's other people you can talk to as well
50:14
yeah amazing i mean i really really hope that nobody ends up in a situation where
50:21
they're so unbelievably overwhelmed and there's nothing that they can do about it but hopefully
50:26
having this conversation and understanding we've like not we've all been there because i haven't
50:31
yet touched wood this is the cycle of economics this is what happens in the world this is there's
50:35
so many things that are in place to make sure that you don't end up in a pickle but you actually the
50:40
more that you know your numbers and the more that you're aware of what's going on the more that you
50:44
can avoid worst case scenario happening and i think it's a good point so if it's like it is a
50:48
cycle right it is a cycle like we have had interest rates go from two percent super low
50:56
up to about six or seven and now they're back down to like three well four they're back down to four
51:01
like things move in cycles and i knew this was not going to be like that situation i just needed to
51:08
like knuckle down, get through it.
51:10
And yes, every time interest rates didn't go down,
51:14
I had a little, but they do eventually.
51:17
And I think that's it.
51:17
And also if you'd had to adjust your lifestyle or whatever,
51:20
there were other levers that you could have pulled
51:22
if it continued in that way.
51:23
Definitely.
51:24
But I think it's just worth knowing,
51:25
like they never last forever,
51:27
even when they're low as well,
51:28
which is also something to remember.
51:30
But yeah.
51:30
What are we doing there at 2%?
51:32
We lock it in.
51:32
Lock it in.
51:34
Okay.
51:34
Hey, we are going to be back next month
51:36
with more property content.
51:37
again, if you're listening to this and you have questions, thoughts, ideas, anything that you want
51:43
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51:45
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51:46
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53:03
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53:12
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53:13
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53:23
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53:26
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53:30
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53:32
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53:46
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53:51
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53:52
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