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Wednesday 16 April 2014  Add your comment
Pricing chaos in home loan market

[With Graph] The home loan market is becoming particularly competitive and is somewhat chaotic at the moment according to one bank chief executive. [READ ON]

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Wrap mortgages attracting official attention

A device for getting people into their own homes with very little deposit or a get-rich-quick scheme? What are known as 'wrap' mortgages are starting to catch the eyes of the authorities here.

Monday, October 8th 2001, 4:37PM

by Jenny Ruth

The initial investor buys a house, establishing a mortgage, then sells it at a higher price and adds a couple of percentage points onto the interest rate. The buyer acquires both under an agreement to take ownership in, say, 30 years time, effectively renting to buy.

If along the way the buyer defaults on repayments, the original owner keeps the title and any equity the buyer might have built up.

Such schemes are being promoted in New Zealand through seminar tours by US get-rich-quick writer John Burley whose website describes "wrap" mortgages as "perhaps the most exciting real estate strategy ever developed."

The site promises that one can "wrap any existing loan and achieve annual returns on investment of 40% or more."

It explains that "starting out with very little money, a workable plan of action and a lot of desire, John used cash flow principles to create wealth."

Mortgage Brokers Association president Rob Tucker says his organisation has recently become aware of the phenomenon.

"As far as we know, members aren’t promoting them but they have come across them with clients from time to time," Tucker says.

"Most of them seem to be keeping clear of it while others are watching it with a very wary eye."

His advice to MBA members is that when they become aware that wrap mortgaging is going on they have a duty of care to ensure the lender is aware of it.

"It could be an arrangement that would frustrate a mortgagee sale. In some cases, nobody would know a house was on sold and lenders may have difficulty realising on their security," Tucker says.

It appears wrap schemes are also being run for tax advantages and have caught the Inland Revenue Department’s eye.

Margaret Cotton, national manager of technical standards, says the IRD is investigating "upwards of 30, maybe more taxpayers" involved in wrap mortgages who are claiming GST. Such schemes are too recent to have come under scrutiny for income tax or capital gains tax purposes, she says.

Whether or not tax breaks apply isn’t cut and dried, Cotton says. "It very much depends on the contracts and how they’re structured. That’s one of the problems. They’re being altered as some of these issues are being discovered," she says.

« Mortgage borrowing rises $357 million in AugustTop mortgage broker supports regulation »

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Mortgage Rates Table

Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AMP Home Loans 6.49 5.69 6.29 6.40
AMP Home Loans $200k+ 6.39 5.59 5.99 6.30
AMP Home Loans LVR <80% - - 5.99 -
ANZ 5.99 5.85 6.49 6.85
ANZ LVR > 80 5.99 6.35 6.99 7.35
ANZ Special - - 5.95 -
ASB Bank 6.00 5.85 6.49 6.85
ASB Bank Special - - - -
BankDirect 6.00 5.85 6.49 6.85
BankDirect Special - - - -
BNZ - Classic - - 5.95 -
Lender Flt 1yr 2yr 3yr
BNZ - GlobalPlus 6.19 5.85 6.29 6.29
BNZ - Mortgage One 6.60 - - -
BNZ - Rapid Repay 6.19 - - -
BNZ - Std, FlyBuys 6.19 5.85 6.29 6.29
BNZ - TotalMoney 5.99 - - -
Credit Union Auckland 6.20 - - -
Credit Union Baywide 5.85 5.90 6.50 -
Credit Union North 6.45 - - -
Credit Union South 5.75 - - -
eMortgage 6.04 6.15 6.69 7.19
Fidelity Life 5.70 5.40 6.00 -
Lender Flt 1yr 2yr 3yr
Finance Direct 6.10 6.45 6.69 7.10
First Credit Union 6.45 - - -
General Finance 5.95 6.25 6.50 7.10
HBS Bank 5.90 ▲5.60 ▲5.99 ▲6.35
HBS LVR > 80% - - - -
Heartland 5.95 6.25 6.50 7.10
Heretaunga Building Society 5.75 5.50 6.30 -
Housing NZ Corp 5.75 5.50 6.30 6.40
HSBC Premier 6.24 5.59 6.29 6.55
HSBC Premier LVR > 80% - - - -
HSBC Special - - 5.79 -
Lender Flt 1yr 2yr 3yr
Kiwibank 5.90 5.69 5.99 6.40
Kiwibank - Capped 5.65 6.50 - -
Kiwibank - Offset 5.60 - - -
Kiwibank LVR > 80% - - 6.29 6.40
Liberty 5.64 - - -
Napier Building Society 5.80 6.00 6.70 -
Nelson Building Society 6.45 5.95 6.60 -
NZ Home Loans 6.10 5.69 6.29 6.60
Perpetual Trust 7.70 - - -
RESIMAC - lo doc 7.34 7.14 7.49 8.05
RESIMAC LVR < 80% 5.84 5.64 5.99 6.55
Lender Flt 1yr 2yr 3yr
RESIMAC LVR < 85% 6.84 6.64 6.99 7.55
RESIMAC LVR < 90% 7.84 7.64 7.99 8.55
SBS Bank 5.90 ▲5.60 ▲5.99 ▲6.35
SBS LVR < 80% - - - -
Silver Fern 5.95 6.10 6.55 7.05
Southern Cross 5.95 6.25 6.50 7.10
Sovereign 6.10 5.85 6.49 6.85
Sovereign Special - - - -
The Co-operative Bank 5.95 5.65 5.99 6.35
TSB Bank 6.04 5.40 5.99 6.40
Wairarapa Building Society 6.20 5.75 5.95 -
Lender Flt 1yr 2yr 3yr
Westpac 5.74 5.85 5.95 6.85
Westpac - Capped rates - 6.19 6.69 -
Westpac - Offset 5.74 - - -
Median 6.00 5.85 6.29 6.85

Last updated: 15 April 2014 9:01am

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