28103v2a Learners Guide

US 28103 v2a
Learner’s Guide
FINANCIAL CAPABILITY
Unit Standard 28103

Version 2 | Level 3 | Credit 4
Analyse and select

personal financing
options for purchasing
a property
Licensed to:
Western Heights High School
2018 - 2a © ATC New Zealand
www.instant.org.nz
i
US28103v2a Learner's Guide Licensed to Western Heights High School

Analyse and select personal financing options for 15052018-US28103-132891 INSTANT Education Solutions
purchasing a property 2a © ATC New Zealand www.instant.org.nz
ii
About this
Learner’s Guide
Learning Purpose & Outcomes
In this course you will learn how to choose the best options to finance the purchase of a
property.
Once you complete this course, you will be able to do the following:
• Look at the advantages and disadvantages of different factors and how they can
influence a purchasing decision
• Look at other considerations and understand how they can influence the purchase of a
property
• Analyse finance options and select the best option according to personal financial
circumstance
A glossary containing difficult or technical terms is provided at the end of this guide. These
words are highlighted in the main text.

Licensed to Western Heights High School US28103v2a Learner's Guide

15052018-US28103-132891 INSTANT Education Solutions Analyse and select personal financing options for
2a © ATC New Zealand www.instant.org.nz purchasing a property
iii
Additional
Resources
Sorted: Your Independent Money Guide: https://www.sorted.org.nz/
Commission for Financial Capability: http://www.cffc.org.nz/
KiwiSaver: http://www.kiwisaver.govt.nz/

1
Contents
Factors that influence purchasing a property 2

Mortgage types 3
Deposit 12
Interest rates 14
LIM report 17
Builder’s report 19
Insurance 21
Other considerations for purchasing a property 26

Mortgage provider fees and incentives 27
Lawyer fees 28
Ability to service the loan 29
Repairs and maintenance 30
Property management fees 31
Body corporate fees 31
Options for financing and purchasing a property 34

Different mortgage types, terms, repayment amounts, frequency, and costs 35
Different deposit amounts and sources 39
Other purchase costs 41
Glossary 44

2
LESSON 1:
Factors that influence

purchasing a property
Learning Objectives
In this lesson, you will learn about the advantages and A space has been left
disadvantages of factors that influence the purchasing of a property. on the right of every
You will learn about the following factors: page for you to make
notes about what
Mortgage types you are learning.
Deposit
Interest rates
Land Information Memorandum (LIM) report
Builder’s report
Insurance.
Throughout this Learner’s Guide you will help

Tyler to choose a suitable finance option to
purchase a property.

3
LESSON 1: Factors that influence purchasing a property
Mortgage types
The buying of a property is an expensive purchase. Often a property

buyer will obtain a mortgage to help pay for the cost of the property.
Mortgage Money lent to someone for the purchase of

property
A mortgage is a loan that a finance company (bank) will give to

a property buyer to purchase a property. The property buyer will
then be required to pay back the principal (loan amount) as well as
interest.
Principal How much has been loaned, for example,

the amount that is loaned for a mortgage
Interest Money paid regularly at a particular rate for

the use of money lent
There are several different mortgage types to consider. Each

mortgage type offers different advantages and disadvantages.
Table
Bridging
Reducing
finance
Mortgage
types
Second
Interest only
mortgage
First
Revolving
mortgage

4
Table
Table This type of loan requires the borrower

mortgage to make set, regular payments over a set
period (loan term). These payments pay off
both principal and interest. The principal
balance reduces after each payment, until
the loan is repaid in full.
A table mortgage is the most common mortgage type. The regular

mortgage payment amount stays the same. Initially a significant
portion of the payment goes towards paying interest, with a small
portion paying the principal balance. As more of the principal is paid
off, the amount of interest paid reduces (see diagram below).
Regular payment amount
Interest
Principal
Retrieved from: https://www.westpac.co.nz/home-loans/your-home-loan-options/repayment-

options/ (01/03/17)
Advantages
The advantages of a table mortgage include:
• there are set regular repayments, so a borrower knows how
much the payments will be. This will make it easier for the
borrower to budget
• the mortgage is usually for a set period (eg 20 or 30 years),
so a borrower knows when the loan will be paid off by
• borrowers can choose between a fixed interest rate, a
floating interest rate, or a mix of both fixed and floating.
“A table mortgage works well for us. We know

exactly how much money to put aside each week
for our mortgage payments. We also know exactly
when our mortgage will be paid off.”

5
Fixed The interest rate remains the same for a set

interest rate term (eg 6% per annum for 3 years).
Floating The interest rate may move up and down,

interest rate depending on the market.
Disadvantages
The disadvantages of a table mortgage include:
• it may not be suitable for someone whose income varies
• payments cover mostly the interest at the beginning of the
loan. Only a little of the principal is paid off initially.
“I am a relieving teacher. Some weeks I work

fulltime, but other weeks I don’t work at all. If I
had a table mortgage I would find it hard to make
payments on the weeks that I don’t work.”
Reducing
Reducing This type of loan involves the borrower

mortgage paying the same amount of principal, but a
reducing amount of interest, each payment.
Reducing mortgage payments are not very common in New

Zealand. They involve paying off a set regular amount of principal.
The amount of interest paid reduces each payment. Therefore,
regular payment amounts are higher at the beginning of the loan and
steadily decrease.
Interest
Principal
Retrieved from: https://www.westpac.co.nz/home-loans/your-home-loan-options/repayment-

options/ (01/03/17)

6
Advantages
• The overall amount of interest paid may be less than a table
mortgage. This is because payments are higher at the start
and pay off a higher amount of principal
• Regular payment amounts reduce (depending on
circumstances, this can be an advantage or disadvantage).
“At the moment we both work. We would prefer

to pay more off our mortgage now, while we are
both earning good money. In about three years,
we are planning to start a family. Then we will
have less money to make mortgage payments, as
we will go down to one income.”
Disadvantages
• Regular payment amounts reduce. If a person can afford to
make higher payments for the whole period of the loan (eg a
table mortgage), the overall cost of interest would be lower
than for a reducing mortgage.
“I can afford to pay $500 a week for a mortgage.

My income will stay the same, so I do not need
my regular payment amount to decrease. A
reducing mortgage is probably not the best option
for me.”

7
Interest Only
Interest Only A loan for which the borrower makes

mortgage interest payments only. They do not make
any principal payments. At the end of the
loan term, they must pay the loan back in
full.
Interest
Advantages
• The regular payment amounts are lower as they only cover
interest, not principal
“I am still on a training wage, so I can only afford

to pay interest on my loan at the moment. When I
start being paid a full wage next year I will change
to another type of loan.”
Disadvantages
• The overall amount of interest paid is higher
• Regular payments do not pay any of the loan off. At the end
of the loan period, the borrower must pay the full amount of
the loan back to the lender.

8
Revolving
Revolving This type of loan does not have any set

mortgage repayments, although it does have a loan
limit. It involves a borrower having their
everyday banking and their mortgage in
one account.
Loan limit
Loan balance
With a revolving mortgage, the loan balance may move up and

down. When the person borrowing money receives their income,
their loan balance will decrease. When they spend money, their loan
balance will increase. Interest is charged on the amount that they
owe.
These types of mortgages suit people who are disciplined with their
money.
Example of a Revolving mortgage:
Date Transaction Revolving mortgage

balance
01/03/17 Revolving mortgage $200,000 $200,000
Purchased property -$200,000 -$200,000
Income +$2,000 -$198, 000
Expenses -$1,000 -$199,000
Interest charges -$829 -$199,829
Note: the second
interest charge is
05/04/17 Income +$3,000 -$196,829
less, as the revolving
Expenses -$1,000 -$197,829
mortgage balance
Money from selling car +$10,000 -$187,829 has dropped
Purchase motorbike -$3,000 -$190,829 from $200,000 to
Interest charges -$795 -$191,624 $190,000

9
Advantages
• If a person is disciplined with their money they are likely to
be able to pay this type of mortgage off quicker
• It can save interest for a borrower, as all their available
money is paying off the loan
• It is suitable for a person whose income varies
Disadvantages
• If a person is not disciplined with their money, it is easy
to keep spending the money available and not reduce the
mortgage. If they do, then this type of loan will take even
longer to pay off.
First mortgage
Most people buying a property just need one mortgage, a first
mortgage. Legal conditions of a first mortgage mean that if the
borrower does meet their obligations, the mortgage provider has the
first rights on the property.
First A loan taken out to purchase property. If

mortgage the borrower fails to meet the conditions
of the loan, the mortgage provider may sell
the property to recover the loan. The first
mortgage loan provider has first options on
recovering their money.
Sometimes you see properties advertised as a mortgagee sale. This

means that the property owner has not met their loan conditions,
and their mortgage provider has ordered the property to be sold so
that they can recover their money.
First mortgages can cover a range of different types of mortgages.
They can be table mortgages, reducing mortgages, and revolving
mortgages. They may have fixed or floating interest rates.
Advantages
Advantages of a first mortgage include:
• lower interest rates (than a second mortgage)
• other advantages will depend on the type of first mortgage
(table, reducing…).
Disadvantages
There is usually a lower limit of how much can be borrowed for a
first mortgage (eg 80% of the property value).

10
Second mortgage
Sometimes, as well as having a first mortgage, a property owner
may take out a second mortgage.
Second A mortgage taken out on a property that

mortgage already has a first mortgage. The mortgage
provider does not have first priority if
the borrower does not meet the loan
conditions.
Advantages
Second mortgages have the advantage of :
• allowing a borrower to borrow money against a property to
make purchases or pay off debt
• having lower interest rates than other types of loans, such as
credit card debt.
Disadvantages
Second mortgages can be quite risky. Risks bring the following
disadvantages:
• second mortgages are riskier for mortgage providers;
therefore, they charge higher interest rates
• a second mortgage payment can be a financial drain
• if a borrower does not meet the obligations of their second
mortgage, they could lose their house.
“I took out a second mortgage to pay off debts I

had on my credit card, and to pay off my car loan.
The interest I pay on my second mortgage (10%)
is higher than what I pay on my first mortgage
(5%); however, it is cheaper than the interest rate I
was paying on my credit card debt (20%) and my
car loan (15%).
My house is worth about $400,000. My first
mortgage is $320, 000. My second mortgage is
$20,000.”
Bridging finance
Bridging finance is a short-term home loan (2 weeks to 3 years). It
is lent to enable a person to purchase property while they wait to
secure finance to help pay for that property.

11
Bridging A short-term home loan to help bridge a

finance financial cash gap. For example, it provides
finance for a person to buy a property
before they sell another property they
currently own.
Advantages
• enables a purchaser to buy another property before selling
their existing one
• gives flexibility and allows the property owner more time to
sell the original property.
Disadvantages
• the borrower will need to pay mortgages on two properties,
until the original house is sold
• fees and interest rates are more expensive for bridging
finance
• if the borrower is not able to keep up with payments, they
may be forced to sell their original home for a lower price.
Tyler is considering the different mortgage types

What do available to him.
You Think? 1. List two mortgage types that would give Tyler the
advantage of knowing exactly how much he needs to
budget each week for his mortgage payments
2. List one mortgage type that would be suitable for Tyler if his income varied.
3. List three mortgage types that have the disadvantage of higher interest costs.

12
Deposit
A deposit is needed to purchase a property. To secure a mortgage

(loan), a deposit of about 20% of the value of a property is required
(eg $20,000 deposit for a $100,000 property). Different mortgage
providers have different deposit criteria (requirements).
Deposit an amount of money that is saved to buy

an item
A person wanting to purchase property may source their deposit

from their:
• savings (from their income, bank account etc)
• KiwiSaver (a work-based retirement savings scheme that
involves contributions from an employee, their employer, and
the government. Under certain conditions it can be used to
purchase a first home)
• family/whānau.
Go to the KiwiSaver website and answer the questions

What do that follow.
You Think? http://www.kiwisaver.govt.nz/ Search for: purchasing
your first home
1. How long does a person need to be a member of KiwiSaver before they can
withdraw money to purchase a first home?
2. How does a KiwiSaver member apply to withdraw money to purchase a first home?

13
Using money (from savings, KiwiSaver, family/whānau) as a deposit

for a house has both advantages and disadvantages.
Advantages
Advantages include:
• the larger a deposit is, the less a person will need to borrow
• the less a person borrows, the faster they will be able to pay
off a loan.
Disadvantages
Disadvantages include:
• the money used for a deposit cannot then be used for other
things
• if money from KiwiSaver is used for a deposit, then the
person will have less money for retirement.
“Each week when I got paid, I put $250 into my

savings account. In five years I managed to save
$65,000. My Grandad gave me $25,000 towards
buying my first house. Therefore, I have a deposit
of $90,000.
The house I want to buy is $400,000. My deposit
is $90,000. I will need to borrow $310,000 from
the bank. If I did not use the money my Grandad
gave me, I would have to borrow more money.
The bank may not want to lend me more, and I
may struggle to pay off a bigger loan.”

14
Interest rates
When borrowing money to purchase property, a person needs to

decide whether their loan will have a fixed or floating interest rate, or
combination of both.
Fixed interest The interest rate remains the same for a set
rate term (eg 6% per annum for 3 years).
Floating The interest rate may move up and down,

interest rate depending on the market.
Interest rates are subject to change. This means that floating interest
rates can move up and down depending on what is happening in
the economy.
Advantages of fixed interest rates

• Interest rates are set, so the borrower knows exactly how
much interest payments will be. This will make it easier for
the borrower to budget.
• They allow purchasers to lock in (secure) a good interest rate
in case rates increase.
• Sometimes, lenders offer special fixed interest rates.
Disadvantages of fixed interest rates

• There is a risk that floating interest rate charges may drop
lower than the fixed rate.
• Often lenders have criteria for fixed interest rates. These
conditions may charge the borrower fees to make extra
payments, or to break the mortgage term.
Advantages of floating interest rates

• There is usually more flexibility to change the term of the loan or
make extra payments, without being charged penalty charges.
• Borrowers may save money if floating interest rates drop
lower that fixed interest rates.
Disadvantages of floating interest rates

• If floating interest rates increase, then a person’s repayments
will increase. This may be hard for them to afford.
• Usually floating interest rates are higher than fixed interest
rates.

15
“The fixed interest rate I can get at the moment

is 5%, fixed for 3 years.
The floating interest rate at the moment is 5.5%.
If I fix my interest rate, I will pay less interest.
If the floating rate goes up, I will still be saving
money. However, if the floating interest rate goes
down below 5%, I will be paying more money in
interest.”
To buy a small house out in the country, Tyler

What do needs to borrow $200,000.
You Think? Using the information you have just read in this
guide and the table below, write down the advantages
and disadvantages Tyler should consider before deciding
on a fixed or floating interest rate.
Fortnightly payment cost

Loan Amount $200,000
Term 20 years
Fixed term interest rate 5.19%* $616
Floating interest rate 5.75%** $645
*note: this fixed interest rate is fixed for 3 years

**note: this floating interest rate could increase or decrease at any time.
1. What are the advantages of a fixed interest rate for Tyler?
2. What are the disadvantages of a fixed interest rate for Tyler?
Continued on next page...

16
3. What are the advantages of a floating interest rate for Tyler?
4. What are the disadvantages of a floating interest rate for Tyler?

17
LIM report
Before purchasing a property, buyers are advised to obtain a LIM

(Land Information Memorandum) report from the local council.
Property buyers will need to complete an application form (or ask
their lawyer to).
Often banks and insurance providers require property buyers to
obtain a LIM report before they will loan money or insure a property.
LIM (Land
Information A report from a city council that provides
Memorandum) information on a property
report
LIM reports contain important information for a property buyer. They

include:
o rates information
o any information the council may have on the property’s storm
water, erosion, soil contamination, flooding, protected trees
o any rates that are overdue on the property
o the building permits or consents that have been issued on
the property
o any outstanding works or Code Compliance certificates for
consents issued since 1993
o if the property has a pool, whether the council knows about
it.
Advantages
LIM reports enable a property purchaser to:
• ensure a property has compliance (if it hasn’t it could be
costly to obtain compliance from the council)
• know if there are any potential problems with the land (eg it
could be at risk of flooding)
• know the current cost of rates, so that they can budget for
this expense.

18
“I looked at a really lovely house with a

swimming pool. I wanted to buy it so I applied
for a LIM report through the council. When I got
the LIM report I realised that the council had no
record of the pool. I researched further information
on this and found out that I would have to spend
a lot of money to bring the pool up to council
regulations. I decided not to purchase the house.
The LIM report saved me buying a house that
would have cost me a lot of extra money”.
Disadvantages
Disadvantages of a LIM report include:
• property buyers need to wait for a LIM application to be
processed (up to two weeks)
• councils charge a fee for LIM reports.
What do Do you think Tyler should get LIM Report?

You Think? Explain why or why not.

19
Builder’s report
A builder’s report can help identify any potential problems with a

property.
builder’s report A report written by a qualified building

inspector who inspects a property and
highlights any possible problems.
Builder’s reports may comment on factors such as:

• the condition of walls, bathroom fittings, kitchens, windows
and doors
• the condition of the roof
• any major cracks
• any significant dampness or leaks.
Advantages
A builder’s report can help:
• pick up potential problems that a buyer may not be able to
pick up themselves
• identify potential costly repairs before a person commits to
buying the property
• a purchaser to negotiate a lower price if significant problems
are found
• give peace of mind to a purchaser that a property has been
checked, and that they know what they are buying.
Disadvantages
Disadvantages of builder’s report include:
• cost
• they often only involve a visual inspection, and so may miss
some problems that cannot be seen on the surface (eg a
shower leaking at the back wall)
• some building report provider’s may be less in-depth than
others.

20
“We found our dream home. We thought it was

worth $600,000. However, when we got a builder’s
report we found out that part of the roof needed
replacing. We did some research and found out it
would cost $30,000 to fix.
Therefore, we negotiated the property purchase
price with the current property owners. They
decided that they would take $20,000 off the
purchase price.
We are glad we got a builder’s report because
we would not have looked at the condition of the
roof. If we had paid full price for the property, we
probably would not have had enough money to fix
the roof.”
What do Do you think Tyler should get a builder’s report?

You Think? Explain why, or why not?

21
Insurance
Purchasing house insurance can help safeguard an owner from

financial costs if something bad happens to their property. For
example, if the property is damaged by fire or flood, the insurance
company would pay to help repair the damage. The person insured
would be required to pay the excess.
House In return for a regular payment (premium),

insurance the insurer will cover costs of repairs or
replacement if the insured’s property is
damaged or destroyed
Excess The amount the insured person has to pay

towards the cost of the claim
Premium The amount of money that the insured is

required to pay for their insurance
“A car drove into my front fence causing a bit of

damage. They drove off before I could find out
who they were. It is going to cost $2,000 to fix the
fence. My excess is $500. This means that I have
to pay $500, and my insurance company will pay
$1,500 for the fence repairs.”
The purpose of purchasing insurance is for a property owner to

ensure that they will be in the same financial position as they were in
before a loss.
It is important to be aware that insurers have strict conditions that
must be met before an insured person receives a payout. If the
insured person is untruthful, their claim is likely to be turned down.
Insured The person who is insured under a

contract of insurance
Insurer The provider of insurance (eg an

insurance company)

22
Other types of insurance

Other types of insurance relevant to property owners include life
insurance, contents insurance, and mortgage protection insurance.
Life insurance In return for a regular payment (premium),

the insurer will make a payout in the event
that the insured dies, or is diagnosed with
a terminal illness
Contents In return for a regular payment (premium),

insurance the insurer will cover costs of the insured’s
belongings if they are stolen, lost, or
damaged
Mortgage In return for a regular payment (premium),

protection the insurer will cover costs of the insured’s
insurance mortgage payments in the event that the
insured’s income is affected by illness or
redundancy
Generally, when applying for a mortgage, property owners are

required to have life insurance and house insurance. Lenders require
this as it helps to protect the money they lend.
Variations in insurance policies

The premiums charged and attractiveness of an insurance policy
may vary depending on:
what the policy

covers
the insurer’s
the excess
reputation

23
Tyler is considering purchasing house insurance

What do
You Think? 1. List the advantages and disadvantages that
house insurance would offer Tyler.
House Insurance No House Insurance

Advantages
Disadvantages
2. Tyler obtained quotes for insurance for the house he wanted to purchase. He
received quotes from three different insurance providers. This table shows the
house insurance policy each company offered Tyler.
ABC Insurers Fairview Insurers 123 Insurers

Premium $100 a month $50 a month $1,000 per year
What is House replacement or Replacement value of Replacement value of
covered by the repairs up to $250,000. the house. the house.
policy
Natural disaster cover. Natural disaster Natural disaster
cover. Temporary cover. Temporary
accommodation, if accommodation, if
needed after a natural needed after a natural
disaster or fire. disaster or fire.
Free entry into a
competition for a trip
for two to Rarotonga.

24
Excess $500 $2,000 $750

Reputation/ This company has This company does This company has
customer good customer not have any reviews good customer
satisfaction reviews, which online. reviews, which
show high customer Their credit rating show high customer
satisfaction. says that they have satisfaction.
Their credit rating says a weak credit rating Their credit rating says
that they have a high (this means they may that they have a high
ability to pay claims. not be able to be able ability to pay claims.
to meet their financial
commitments).
• List the advantages and disadvantages that each of these house insurance
policies would offer Tyler.
ABC Insurers Fairview Insurers 123 Insurers

Advantages
Disadvantages

25
3. List other insurance types that would be advantageous for Tyler to consider, and
why they would be advantageous.
Other insurance types Reason/s these would be an advantage
4. What would be the disadvantages of Tyler purchasing these other insurance

types?

26
LESSON 2:
Other considerations for

Learning Objectives
In this lesson, you will learn about other considerations for
purchasing a property in terms of their influence on the purchasing
decision. You will learn about the following factors:
mortgage provider fees and incentives
lawyer fees
ability to service the loan
repairs and maintenance
property management fees
body corporate fees.
Many different factors can influence a property purchase decision. A

purchaser should not only ensure their budget can meet mortgage
costs, but they should also ensure they would be able to meet the
other costs involved in buying and maintaining a property.
Examples of other considerations

Look at the following examples of other considerations.
Mortgage provider fees and incentives
Lawyer fees
Ability to service the loan
Repairs and maintenance
Property management fees
Body corporate fees

27
LESSON 2: Other considerations for purchasing a property
Mortgage provider fees

and incentives
Interest payments are not the only expense involved in paying for
a mortgage. Many insurance providers charge mortgage provider
fees for setting up a mortgage. These fees pay towards the costs of
documentation and approval of the mortgage.
Sometimes mortgage providers also offer incentives to attract
people to take out their mortgage with them. Incentives can vary
and usually have terms and conditions attached.
Mortgage Charges a borrower must pay to a

provider fees mortgage provider for the costs involved
in setting up a mortgage.
Incentives Things that motivate or encourage

someone to do something.
Terms and Rules and requirements a person must

conditions meet to receive the incentives.
Here are three different mortgage provider fees and incentives

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28
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Lawyer fees
A person buying property needs to engage a lawyer to complete the

legal transfer of the property. Lawyer fees make up part of the cost
of purchasing property. The fees charged can vary, so it is important
to check the charges, and shop around.
“I needed to pay lawyer fees to help with the

purchase of my property. The lawyer ensured me
that all the legal paperwork was done properly
and gave me legal advice on the purchase.
I checked out the conveyancing fees of three
lawyers. The first lawyer quoted me $1,500,
the second lawyer quoted $1200, and the third
lawyer said the fees would be $1000. I looked at
what each lawyer would cover and decided that
the lawyer charging $1200 would best meet my
needs.”
Conveyancing The area of law regarding preparing

documents and transferring legal
ownership during the buying and selling of
property

29
Ability to service the loan
Before obtaining a loan, a purchaser needs to ensure that they will

be able to make the loan repayments. This is called ‘servicing the
loan’.
If a person is unable to prove to a lender that they will be able to
service a loan (for example, by showing the lender their income
statements) then they will not be able to obtain a loan.
If a person takes out a loan and fails to service the loan, then the
lender may sell the property.
“On my income, and with the savings I have, I

can afford loan repayments of $1,500 a fortnight.
I have found two properties that I would consider
purchasing. One property is $600,000, the other
property is $750,000. Although I prefer the more
expensive property, I know I would not be able to
service the loan repayments of $1650 a fortnight.
However, the loan repayments on the other
property would be $1269 a fortnight. I would be
able to service the loan on this property.”

30
All properties incur some kind of repair and maintenance expenses.

For some properties, this will be higher than for others.
List repairs and maintenance expenses that property

What do owners you know (friends, family, landlord) have had to do.
You Think?
Note: the first answer has been completed for you
plumbing -
fix toilet
repairs and
maintenance
When considering purchasing a property, a buyer needs to consider

the repairs and maintenance costs that the property will require.
“My father has advised me not to buy a house

that could be a leaky building. This is because the
repairs on a leaky home can be very expensive.”

31
Property management fees are an expense that property owners,

who want to rent out their property, may have to pay.
Property A service offered by property agencies

management to manage a property that is available for
rent.
Property The amount a property owner needs to

management pay for their property to be managed by a
fees property agency.
These fees cover services such as:

• finding tenants for a property
• arranging repairs and maintenance
• property inspections
• ensuring rent is paid.
The fees charged depend on the property agency and the service
that they provide. Generally, property agencies charge 5 to 10% of
the rent received on a property.
Body corporate fees
Ownership of apartments, townhouses, car parks, industrial units,

and commercial offices usually requires the owner to be part of
a body corporate. Part of being a member of a body corporate
involves paying body corporate fees.

32
Go to the Citizen’s Advice Bureau website: http://www.

What do cab.org.nz/
You Think? Search for body corporates and answer the following
questions.
1. What is a body corporate?
2. What is the purpose of a body corporate?
3. What are body corporate fees for?

33
1. When considering different properties that he might

want to purchase, Tyler came across the following
Review expenses. Match each type of expense to its
matching definition.
Ability to service loan A payment charged for the management of a rental

property
Mortgage provider A payment that unit owners, within a unit title
fees and incentives development, must pay
Repairs and Whether a person is going to be able to pay their
maintenance mortgage payments
Body corporate fees Expenses related to looking after a property
Property management Charges and rewards involved in establishing a
fees mortgage
Lawyer fees A payment charged for conveyancing
2. What considerations and expenses should Tyler consider when looking to

purchase a cheaper house that is old and run down compared to a more
expensive, well-maintained house?
3. What considerations and expenses should Tyler consider when looking to

purchase an apartment that he could rent out?

34
LESSON 3:
Options for financing and

Learning Objectives
In this lesson, you will learn about options for financing and
purchasing a property. You will learn to analyse and select options
that are suitable for a person’s personal financial circumstances. The
options that you will analyse and select include:
different mortgage types, terms, repayment amounts and
frequency, and costs
different deposit amounts, and sources
other purchase costs
To select the best personal financial options for purchasing a

property you will need to analyse the different options available,
and select the most appropriate option. You will then need to give
reasons as to why the option chosen is the best for the purchaser’s
personal financial circumstances.
Lastly, you will need to justify why a certain option is most suitable.
Select To choose something
Analyse To examine the details
Reasons An explanation for why something is true
Personal
A person’s money situation (their income,
financial
expenses, debts etc)
circumstances
Justify To show or prove that a decision is correct

and reasonable, and better than other
options

35
LESSON 3: Options for financing and purchasing a property
Different mortgage types, terms,

repayment amounts, frequency, and costs
The various mortgage types provide different terms and conditions

for a borrower. What is suitable for one borrower may not be suitable
for another.
Therefore, it is important to know how to analyse and select a
suitable mortgage in relation to a person’s own situation.
Talia, Brad and Maddie have all found homes that they would like to
purchase. The table below shows the different types of mortgages
available to them.
Different Terms Repayment Frequency Costs

mortgage types amounts
Table Borrow up to 80% $350 a week Weekly payments
20-year term
Fixed interest (penalty
fees for lump-sum
payments)
Reducing Penalty fees for lump- Starts at $900 Fortnightly Mortgage
sum payments a fortnight, but provider fee $500
reduces each
payment
Interest only 3- year term $250 a week Weekly payments
Revolving Borrow up to 80% No fixed payment No fixed payments
of price of property amount
(For example: with Must meet interest
an $80,000 deposit costs each
a person could fortnight
borrow $320,000 and
Unspent money
purchase a $400,000)
is left in account
Loan and savings are (which is like
in one bank account paying a lump-sum
payment)
First mortgage $450,000 No fees
20-year term
Second $350,000
mortgage Free entry for
competition to win a
family holiday in Fiji
Bridging $400,000
finance 2 weeks to 1 year

36
“My house is on the market, it has not

sold yet. I still have a mortgage of $300,000 on it.
I have seen a house that I would like to purchase
before my house sells. I need a loan ($400,000)
that would allow me to do this.”
When we analyse the best mortgage type for Talia in relation to her
personal financial circumstances we can see that bridging finance
might be the best option for her.
The reasons for this are this type of loan would allow her to
purchase the second house while she waits for her first house to
sell. She would need to be able to prove that she can afford to pay
off both loans.
The justification for this is as she still owns her first property and
has a mortgage of $300,000 on it. So, she needs a short-term
second loan while she waits for her house to sell. Most other
mortgages (apart from a second mortgage) would not allow her to
do this. The second mortgage, while it offers Talia a chance to win
a holiday, it does not allow her to borrow the amount she needs -
$400,000.
“I am a first-time property buyer. I am an

electrician and I earn $1900 a fortnight (after tax).
I am very disciplined with my money, and stick
to a strict budget. My food, electricity and other
expenses are $350 a week. I want to spend about
$1,000 a fortnight on my mortgage.
I would really like to pay off my mortgage as soon
as possible, so It would be good if I can pay off
lump sums, as and when I can.
The house I would like to buy is $400,000. I have
$90,000 for a deposit, so I would like to borrow
$310,000.”
When we analyse the best mortgage type for Brad in relation to

his personal financial circumstances we can see that a revolving
mortgage would be the best mortgage type for him.
The reasons for this are he is disciplined, and revolving mortgages can
save money for people for are disciplined with their money. It means
that all his money is in one account, so he can pay off lump sums. With
interest charged fortnightly, this would suit his fortnightly income.

37
A revolving mortgage would suit Brad better than the other types
of mortgages, as then all his unused money can help pay off
his mortgage and reduce his interest costs. This suits him as a
disciplined person who is keen to pay off his mortgage as fast as
possible. The other mortgages do not offer this flexibility, and some
charge penalties for lump sum payments.
“At the moment, I am on a really

limited income, as I only work part time. I have
seen a property I would like to buy, but this year I
can only afford to pay $300 a week on a loan.
However, next year when my toddler starts
childcare I will go back to working full time and
be able to afford to pay $500 a week on my
mortgage.”
When we analyse the best mortgage type for Maddie in relation

to her personal financial circumstances we can see that an interest
only loan would suit her.
The reasons for this are that she cannot afford very high mortgage
payments this year due to the hours she works. While she is on a
limited income this year, she hopes that this will change next year.
The justification for an interest only loan is that it would mean
Maddie only has to pay interest payments, not principal payment.
She would be able to afford this type of loan; however she would
not be able to afford other types of loans that require both interest
and principal payments. When she returns to work full time, she may
change to a different type of loan.
Tyler has analysed different mortgage types and

Try it for decided that a table mortgage would suit his personal
Yourself financial situation best. He now needs to decide
which table mortgage provider is best for him.
The property Tyler wants to purchase is $260,000. He has $60,000 deposit and
wants to borrow $200, 000. He gets paid $600 after tax each week. He has $350 a
week to spend on mortgage payments. He would like to pay his mortgage off as fast
as he can afford to.

38
Terms Repayment Frequency Costs

amounts
Table Mortgage 15 years $368 weekly Mortgage set up fee - $500
with Kowhai Loan amount: $200,000 Total interest costs -
Bank $88,005
Free smart phone
Table Mortgage 20 years $617 fortnightly Mortgage set up fee - free

with AAA Loan amount: $200,000 Total interest costs –
Financial $121,878
No penalties for paying
Institute
lump sums.
$1,000 towards
moving costs.
Table Mortgage 30 years $252 weekly Mortgage set up fee - $400
with Rimu Bank Loan amount: $200,000 Total interest costs - $194,642
1. Which table mortgage do you think would suit Tyler best?
2. Give reasons for your choice.
3. Justify why this is the best choice for Tyler instead of other options.

39
Different deposit amounts and

sources
Brad is not sure whether he should pay $90,000 or
$105,000 as a deposit on his property.
The money that he has access to for his deposit
includes his:
• Savings- $60,000 available
• KiwiSaver- $15,000 available
• Parents, who have offered to loan him up to $30,000. He
would need to make weekly payments to them to pay them
back. The payment amounts will depend on how much he
borrows.
Brad has decided to use all his savings and KiwiSaver money
towards his deposit and borrow $15,000 from his parents. He will
make a deposit of $90,000 for his mortgage.
The reasons for this are that this is what he had been saving his
money and KiwiSaver fund for. Brad feels he is still young, and will
be able to replace the money he uses from his KiwiSaver account
before he is retirement age. However, he does not want to borrow
too much from his parents. $90,000 is a big enough deposit to
purchase his property, while still not having to take too big a loan
from his parents.
Brad justified this decision because he feels it is best to use all the
savings and KiwiSaver he has available. He wants to borrow as little
as possible from his parents, as the bank will want to know what
other loans that he has. If he has too big a loan from his parents,
the bank may not lend him as much. In addition, he will only be able
to afford to make small repayments to his parents, as most of his
money will be going on his mortgage. Although paying a smaller
deposit will mean he has to pay more interest, at least with this
option he will be able to afford the payments.

40
Try it for Tyler is deciding how much he will pay as a deposit

Yourself on the property that he wants to purchase.
Deposit money sources that he has access to include:

Savings – $45,000
Kiwi Saver -$10,000
Gift from his uncle $5,000
If Tyler pays $70,000 as a deposit, he will pay $115, 689 interest over the course of a 20-year loan.
Note a deposit of $40,000 would not be a big enough deposit for Tyler to obtain a mortgage.
1. How much do you think Tyler should pay as a deposit?
2. What money sources do you think Tyler should use for his deposit?
3. Describe the reasons why you decided on this deposit amount and these sources.
4. Justify why you decided on this deposit amount and these sources, rather than
other options.

41
Other purchase costs
In lesson two we looked at other purchase costs to consider when

purchasing a property. These included:
• mortgage provider fees and incentives
• lawyer fees
• ability to service loan
• repairs and maintenance
• property management fees
• body corporate fees
Scenario – Brad
Brad is organising the purchase of his $400,000
home. He is considering the options he has for the
other purchase costs he needs to pay.
Mortgage provider fees and incentives options
Mortgage provider: Mortgage provider: Mortgage provider:

Rich Bank Money Bank Gold Bank
Fees: $500 $750 $0
Incentives: $2, 000 towards your deposit Receive a gift of 0.5% of the Receive $500 towards your
amount you borrow. deposit.
Loan of a furniture removal
truck for 4 hours (this means
Brad would receive $1, 550 if
he borrowed $310, 000).
“I have selected Rich Bank as they have the best fees

and incentives for my personal financial circumstances.
The reason for this is that I think the fees are
reasonable at $500, and I will get $2,000 back.
This means I will have an extra $1,500 for the
deposit. ($2,000 minus $500 fees).
I have justified this decision against the other
options because Money Bank would only give me
$800 towards my deposit ($1550 minus $750 fees).
They would also have given me free use of a truck,
but I do not need this as my family are going to
help me move. While Gold Bank do not charge any
fees, their incentives are not as good as Rich Bank.”

42
Lawyer fees
“I looked at lawyers who do conveyancing and

they all quoted me the same price. I have elected
to use a lawyer that my friends had used and had
recommended.
The reason I chose this lawyer is that I felt that I
could trust them to do a good job since they had
completed quality conveyancing for my friends.
I justified my decision because the cost of this
lawyer was the same as the cost for the other
lawyers, so it was a fair price. I also felt that using
the services of this lawyer would ensure that all
my legal work for purchasing the property would
be completed properly.”
Ability to service loan
“I selected a revolving mortgage loan. I will

ensure I pay $1,000 a fortnight to service (pay for)
my loan.
The reason that I decided on this amount is that
this is how much I can afford in my budget. This
is more than enough for me to pay interest and
some principal off each fortnight.
I justified that a revolving mortgage is best for me
as it allows me to pay off my mortgage at a rate
that I can afford. If I chose a 10-year table loan,
the repayments would be $1,525 a fortnight. I
would not have the ability to service this loan, as I
would be short $525 each fortnight.”

The house that Brad is planning to purchase is old, but in good
condition. The window frames need painting and one part of the roof
may need replacing in the next couple of years. There is one tap that
is dripping, but all the other plumbing and electrical work is in good
repair. The curtains and flooring have all been replaced recently.

43
“I selected a house to purchase that did not

need too much spent on it. I will only need to
spend money on paint and a new tap. I will also
pay an extra $100 on my revolving mortgage each
month to save for the roof repairs.
The reasons and justification for setting aside
this money is that I want to keep my property in
good repair. If I do not do this work, the leaky tap
could cause water damage. And if the roof isn’t
repaired it could start to leak and cause damage.
I do not have to set aside money for labour as I
will do the painting myself, and my friend who is a
plumber has offered to put the new tap in for me.
The roof will cost quite a bit. If I put an extra $100
on my revolving mortgage each month, then when
it comes time to replace part of the roof I will
just take the money from my revolving mortgage
account to pay for it.”

and body corporate fees
As Brad is planning to live in the property that he purchases, he
does not have to budget for these costs.

44
Glossary
Analyse To examine the details.

Body corporate A payment that unit owners, within a unit title development must pay.
fees
Bridging finance A short-term home loan to help bridge a financial cash gap. For example,
it provides finance for a person to buy a property before they sell a
property they currently own.
Builder’s report A report written by a qualified building inspector who inspects a property
and highlights any possible problems.
Contents insurance In return for a regular payment (premium), the insurer will cover costs of
the insureds belongings are stolen, lost or damaged.
Conveyancing The area of law to do with preparing documents and transferring legal
ownership during the buying and selling of property.
Deposit An amount of money that is saved to buy an item.
Excess The amount the insured person has to pay towards the cost of the claim
First mortgage A loan taken out to purchase property. If the borrower fails to meet the
conditions of the loan, the mortgage provider may sell the property to
recover the loan. The first mortgage loan provider has first options on
recovering their money.
Fixed interest rate The interest rate remains the same for a set term (eg. 6% per annum for 3
years).
Floating interest The interest rate may move up and down, depending on the market.
rate
House insurance In return for a regular payment (premium), the insurer will cover costs of
repairs or replacement if the insured’s property is damaged or destroyed.
Incentives Things that motivate or encourage someone to do something.
Insured The person who is insured under a contract of insurance.
Insurer The provider of insurance (eg an insurance company).
Interest Money paid regularly at a particular rate for the use of money lent.
Interest only A loan where the borrower makes interest payments only. They do not
mortgage make any principal payments. At the end of the loan term, they must pay
the loan back.
Justify To show or prove that a decision is correct and reasonable and better
than other options.
Life insurance In return for a regular payment (premium), the insurer will make a payout
in the event that the insured dies, or is diagnosed with a terminal illness.
LIM (Land A report from a city council that provides information on a property.
Information
Memorandum)
Report

45
Mortgage Money lent to someone for the purchase of property.

Mortgage In return for a regular payment (premium), the insurer will cover costs of
protection the insured’s mortgage payments in the event that the insured’s income is
insurance affected by illness or redundancy.
Mortgage provider Charges a borrower must pay to a mortgage provider for the costs
fees involved in setting up a mortgage.
Personal financial A person’s money situation (their income, expenses, debts etc).
circumstances
Premium The amount of money that the insured is required to pay for their
insurance.
Principal How much has been loaned, for example, the amount that is loaned for a
mortgage.
Property A service offered by property agencies to manage a property that is
management available for rent.
Property The amount a property owner needs to pay for their property to be
management fees managed by a property agency.
Reasons An explanation for why something is true.
Reducing This type of loan involves the borrower paying the same amount of
mortgage principal, but a reducing amount of interest each payment.
Revolving This type of loan does not have any set repayments, although it does
mortgage have a loan limit. It involves a borrower having their everyday banking and
their mortgage in one account.
Second mortgage A mortgage taken out on a property that already has a first mortgage. The
mortgage provider does not have first priority if the borrower does not
meet the loan conditions.
Select To choose something.
Table mortgage This type of loan requires the borrower to make set, regular payments
over a set period (loan term). These payments pay off both principal and
interest. The principal balance reduces after each payment, until the loan
has been repaid in full.
Terms and Rules and requirements a person must meet to receive the incentives.
conditions

46

47

21 Ruakura Rd, Hamilton East,
Hamilton 3216
Phone: 0800 864 863
E-mail: instant@atc.org.nz
www.instant.org.nz
© ATC New Zealand


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US 28103 v2a

Unit Standard 28103

Analyse and select

US28103v2a Learner's Guide Licensed to Western Heights High School

Licensed to Western Heights High School US28103v2a Learner's Guide

US28103v2a Learner's Guide Licensed to Western Heights High School

Factors that influence purchasing a property 2

Other considerations for purchasing a property 26

Options for financing and purchasing a property 34

Licensed to Western Heights High School US28103v2a Learner's Guide

Factors that influence

Throughout this Learner’s Guide you will help

US28103v2a Learner's Guide Licensed to Western Heights High School

LESSON 1: Factors that influence purchasing a property

The buying of a property is an expensive purchase. Often a property

Mortgage Money lent to someone for the purchase of

A mortgage is a loan that a finance company (bank) will give to

Principal How much has been loaned, for example,

Interest Money paid regularly at a particular rate for

There are several different mortgage types to consider. Each

Licensed to Western Heights High School US28103v2a Learner's Guide

LESSON 1: Factors that influence purchasing a property

Table This type of loan requires the borrower

A table mortgage is the most common mortgage type. The regular

Regular payment amount

Retrieved from: https://www.westpac.co.nz/home-loans/your-home-loan-options/repayment-

“A table mortgage works well for us. We know

US28103v2a Learner's Guide Licensed to Western Heights High School

LESSON 1: Factors that influence purchasing a property

Fixed The interest rate remains the same for a set

Floating The interest rate may move up and down,

“I am a relieving teacher. Some weeks I work

Reducing This type of loan involves the borrower

Reducing mortgage payments are not very common in New

Regular payment amount

Retrieved from: https://www.westpac.co.nz/home-loans/your-home-loan-options/repayment-

Licensed to Western Heights High School US28103v2a Learner's Guide

LESSON 1: Factors that influence purchasing a property

“At the moment we both work. We would prefer

“I can afford to pay $500 a week for a mortgage.

US28103v2a Learner's Guide Licensed to Western Heights High School

LESSON 1: Factors that influence purchasing a property

Interest Only A loan for which the borrower makes

Regular payment amount

“I am still on a training wage, so I can only afford

Licensed to Western Heights High School US28103v2a Learner's Guide

LESSON 1: Factors that influence purchasing a property

Revolving This type of loan does not have any set

With a revolving mortgage, the loan balance may move up and

Example of a Revolving mortgage:

Date Transaction Revolving mortgage

US28103v2a Learner's Guide Licensed to Western Heights High School

LESSON 1: Factors that influence purchasing a property

First A loan taken out to purchase property. If

Sometimes you see properties advertised as a mortgagee sale. This

Licensed to Western Heights High School US28103v2a Learner's Guide

LESSON 1: Factors that influence purchasing a property

Second A mortgage taken out on a property that

“I took out a second mortgage to pay off debts I

US28103v2a Learner's Guide Licensed to Western Heights High School

LESSON 1: Factors that influence purchasing a property

Bridging A short-term home loan to help bridge a

Tyler is considering the different mortgage types