The Finances. We are now waiting for the engineer to go over the plans and means we have a slight wait before anything else can progress. It’s probably timely to refer to the funding/finances.
As I have mentioned previously we have increased the cost to build by around 50% from our initial budgets. We have been relatively relaxed about this increase as it stays under our 10 year forecast for paying off the house, which is a key figure for us. Being able to pay off a mortgage in less than 10 years means it occupies a timeframe we can comprehend easily. It also means the interest component of the mortgage will only be 30-40 percent of the amount borrowed, as opposed to 110-150% if the mortgage was paid off over 30 years(differences dependant on interest rates). There is a cost to borrowing, which is understandable as a lender is risking their money so they need a return. However paying more in interest then the actual amount being borrowed is not something I’m willing to do, hence sticking to a 10 year timeframe. We are also able to look at the scenario of not selling our existing house and having it as a rental, be it short term or long term. Our projection is as follows:
The blue graph being the build cost and selling our current house, which will mean we have debt for 7 years, the red is retaining our current house and renting it, which means we have debt for 12 years. (the spike is when the build cost occurs, I’ve done it as a one off cost where in reality it will be the section purchase + the build over a number of months). So retaining both properties is outside our preference plus the house is not what I would consider an ideal rental so we will be looking to sell providing we get a reasonable price, however we can manage retaining both properties so will not have to resort to a firesale or anything like that.
Mike Columbus is a founder of sortmymortgage.co.nz and director of New Zealand Home Loans Christchurch Central. Mike can be contacted on 03 335 3527 or 021 369908. This advice is of a general nature only and before acting on it please read my disclaimer which can be obtained by emailing me at mike.columbus@nzhomeloans.co.nz