Buying your first home in New Zealand is an exciting milestone, but the mortgage process can feel overwhelming, especially if you are unfamiliar with mortgage jargon. At Benchmark Mortgages, we are here to remove the jargon and simplify the process for you.

This first part of our two-part series is designed to simplify the key terms you’ll encounter in the early stages of your home-buying journey.

Understanding these terms will equip you to make informed decisions and navigate the process with confidence every step of the way.

Mortgage Broker

Right at the beginning of the first home-buying journey, a mortgage broker can help you immensely while streamlining the process as much as possible. They can help with your home loan, acting as a middle person between you and the lenders to get you the best possible deal. They’ll assist with tasks like assessing your finances, determining the type of home loan that’s right for you, and advising how much you can borrow.

Vendor

The seller of the property.

Appraisal

An appraisal is the estimated value of a property determined by a professional appraiser. This evaluation is based on an impartial analysis that compares the property to similar homes recently sold in the area. The appraisal establishes the home's fair market value, which is crucial for both sellers and buyers. For sellers, it indicates how much the property might sell for, while for buyers, it helps secure financing by assuring lenders that the property is worth the loan amount.

Rateable Value (RV)

The RV differs from the property value. The council sets the rateable value and the assessed value to calculate your property’s rates. It often includes land value, capital value, and improvement value.

Principal

Principal refers to the total amount of money you borrow when taking out a mortgage. For instance, if you borrow $300,000 to purchase a home, that $300,000 is your principal. Your mortgage payments will include portions of this principal, along with interest, which is the cost charged by the lender for providing the loan.

Pre-Approval

One of the first steps in home-buying is securing a pre-approval for your mortgage. Pre-approval gives you a clear idea of how much you can borrow and shows sellers that you’re a serious buyer. It’s essentially a conditional offer from a lender, indicating they are willing to lend you a certain amount, provided specific conditions are met. Pre-approval expires after a set period, such as three or six months.

Credit Score

To obtain pre-approval, your lender will assess your credit score—a numerical representation of your creditworthiness. Your credit score reflects your financial history, including your ability to repay loans. A higher credit score can result in better loan terms, such as a lower interest rate. If your credit score isn’t where you want it to be, now is the time to improve it by paying down debt, avoiding new credit applications, and ensuring all bills are paid on time.

Negotiation

When a property is sold through negotiation, buyers submit offers that sellers can either accept or respond to with a counteroffer—usually lower than the original asking price but higher than the buyer's offer. This back-and-forth continues until both parties agree on a sale price. Homes sold by negotiation might be listed with a set price or simply invite offers from potential buyers.

Deposit

The deposit is the upfront payment you make when purchasing a home, typically 20% of the property’s purchase price. However, if you don’t have a full 20% deposit, some lenders offer options for smaller deposits, which may involve additional costs like Lenders Mortgage Insurance (LMI).

Loan-to-Value Ratio (LVR)

The Loan-to-Value Ratio (LVR) is a crucial factor that lenders consider when approving your mortgage. LVR is the percentage of the property's value that you’re borrowing. For example, if you have a 20% deposit, your LVR is 80%.A lower LVR generally means less risk for the lender, which could result in more favourable loan terms. Conversely, a higher LVR might limit your options and increase your costs.

LIM Report (Land Information Memorandum)

Are port from the local council providing detailed information about the property, including zoning, building consents, and potential hazards.

Equity

The portion of the property that you own outright is calculated as the difference between your property’s market value and the outstanding mortgage balance.

Need expert guidance through the mortgage process?

Ready to make your first home purchase easily? Reach out today for expert guidance through every step of the mortgage process.

If you have any questions, contact me for a free consultation. My commitment to creatively structuring mortgages to help you save money and maintain low costs has earned me recognition as one of NZA’s inaugural Top 25 Brokers.

As the founder of Benchmark Mortgages, I’ve made it my job to help you make the best decisions regarding your mortgage options. I’m here to simplify the mortgage jargon so you can feel confident about the choices you make while buying your first home.

Contact me today, and let’s get you one step closer to your first home.