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KiwiSaver could make refinancing harder

Increasing home loan rates are not the only thing hurting borrowers at the moment. One brokers says joining KiwiSaver could make refinancing even harder.

 Diverting part of your pay packet into a KiwiSaver savings scheme may impact on a person's ability to refinance a home loan.

While contributions to KiwiSaver at 4% of gross salary may not seem like much but it is $167 a month for someone on $50,000 a year and for someone who elects for the 8% contribution rate it is more than $300 a month.

"That could have an effect on a home-loan application or refinancing application if someone's finances are reasonably tight, particularly in the recent high-interest rate environment," Mike Pero chief executive Jeff Staniland says.

One of the questions at the moment is how lenders will treat KiwiSaver contributions in relation to home-loan applications. Some lenders look at gross income and say they will probably treat KiwiSaver contributions as an expense while others look at net income after the KiwiSaver contribution.

"For people looking to refinance existing loans KiwiSaver could have an effect on how they are treated."

Staniland says "a lot of people will need to refinance their home-loans over the coming months as they come off fixed-term rates and may be facing a significant hike in interest rates.

"There are of course a variety of options our brokers can suggest. The effect of KiwiSaver contributions, however, will be to lower the amount that can be committed to home-loan repayments."

For someone with a $200,000 mortgage fixed at 7% (say two years ago) for a 15-year term and seeking to refix for another two years at 9.25%, monthly payments would go from $1764 to $2026, an increase of $262 a month.

Mike Pero Mortgages is advising people with existing home-loans to talk to a mortgage broker about KiwiSaver before committing to join the scheme.