Mortgages a brief history

Mortgages are a common way for Kiwis to buy property by borrowing money from a financial institution. They're a crucial part of the real estate market, allowing people to invest in homes and build equity over time. In this comprehensive blog, we'll explore the ins and outs of mortgages, including their history, types, and how they work in New Zealand.

A Brief History of Mortgages in New Zealand

The concept of a mortgage dates back to ancient times, with evidence of land being used as collateral for loans in Babylonian times. In New Zealand, mortgages became more accessible to the general public in the early 20th century. In 1936, the state-owned institution, Housing Corporation, was established to provide government-backed mortgages, which helped make homeownership more accessible to New Zealanders.

Types of Mortgages in New Zealand

There are several types of mortgages available to homebuyers in New Zealand, each with its own unique features and benefits. Here are the most common types:

Fixed-Rate Mortgages: A fixed-rate mortgage is a type of loan where the interest rate remains the same for the entire term of the loan, which is typically 1, 2, 3, 4 or 5 years. This type of mortgage offers stability and predictability, as the borrower knows exactly how much their monthly payments will be.

Adjustable-Rate Mortgages: An adjustable-rate mortgage, also known as a floating-rate or variable mortgage, has an interest rate that can change over time. This type of mortgage offers flexibility, as the borrower's interest rate can adjust up or down based on market conditions.

Interest-Only Mortgages: An interest-only mortgage allows the borrower to pay only the interest on the loan for a set period, typically five to ten years. After the interest-only period ends, the borrower must start paying back the principal in addition to the interest.

How Mortgages Work in New Zealand

In New Zealand, the process of getting a mortgage typically involves working with a bank or other financial institution. The borrower must provide proof of income, employment, and creditworthiness to qualify for a mortgage. The bank will also conduct a property valuation to determine the value of the property and how much the borrower can borrow.

Once the borrower is approved for a mortgage, they'll typically make monthly payments that include both principal and interest. The amount of the payment will depend on the interest rate, the term of the loan, and the amount borrowed.

Conclusion

Mortgages are an important part of the New Zealand real estate market, enabling Kiwis to invest in property and build wealth over time. Whether you're looking for stability, flexibility, or low initial payments, there's a mortgage product to suit your needs. It's important to do your research and work with a trusted financial adviser, like myself to find the right mortgage for you.

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